annual financial report 2015 - engie eps · persistently low commodity prices, subdued global...
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DOCUMENTS: Annual Financial Report 2015 Consolidated Financial Statements 2015
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ANNUAL FINANCIAL REPORT 2015
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INDEX OF CONTENTS
ITEM ........................................................................................................................ PAGE
Persons Responsible ................................................................................................ 5
1.1. Person responsible for the Annual Financial Report ....................................................................................... 5
1.2. Statement of the responsible for the Annual Financial Report ....................................................................... 5
Introduction ............................................................................................................ 5
2.3. Macroeconomic and market scenario ............................................................................................................ 6
2.4. Climate change trends and global energy storage landscape ......................................................................... 8
2.5. Significant Events in 2015 ............................................................................................................................. 10
Situation and activity of the Group during Financial Year 2015 ................................... 12
3.1. Summary of the historical and current Group’s activity ................................................................................ 12
Evolution of the business, results, and financial situation of the Group ...................... 33
4.1. Group Activity and principal factors affecting the performance of the Group in 2015 .................................... 33
4.2. Presentation of the principal items of the consolidated income statement ................................................... 35
4.3. Comparison of the financial years ended 31 December 2014 and 2015 ..........................................................38
Post-closure events and business outlook 2016 ......................................................... 52
5.1. Significant events since 31 December 2015 .................................................................................................. 52
5.2. Business Outlook......................................................................................................................................... 52
Key financial and non-financial performance indicators ............................................. 53
6.1. Sales, other income, Capex and EBITDA ....................................................................................................... 53
6.2. Backlog for 2016, customers and geographical diversification ..................................................................... 54
6.3. Adjusted figures .......................................................................................................................................... 56
6.4. Main cash outlays ........................................................................................................................................ 56
6.5. Pro-forma net financial position ................................................................................................................... 57
6.6. Credentials, installed base and market share ............................................................................................... 58
6.7. Human Capital ............................................................................................................................................ 58
6.8. Gender Diversity ......................................................................................................................................... 59
6.9. Headcount by function ................................................................................................................................ 59
6.10. Generation Diversity ................................................................................................................................... 60
6.11. Headcount by degree .................................................................................................................................. 60
6.12. Headcount by geographical area ..................................................................................................................61
6.13. Our team, engaged stakeholders .................................................................................................................61
6.14. Evolution in compensation, our main investment ........................................................................................ 62
6.15. Health and safety as a priority ..................................................................................................................... 62
6.16. Absenteeism ............................................................................................................................................... 62
6.17. Training ........................................................................................................................................................63
6.18. Sponsorships and charities ...........................................................................................................................63
6.19. Our responsibility to the environment ..........................................................................................................63
Research and development activities .......................................................................63
7.3. Current Research and Development activities ..............................................................................................63
7.4. Future investment Research & Development activities ................................................................................ 69
Risk factors ............................................................................................................ 70
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8.1. Risks associated with the Group’s business and industry .............................................................................. 70
8.2. Risks associated with the technology, the intellectual property and the products ......................................... 77
8.3. Risks associated with the supply chain and operations ................................................................................. 81
8.4. Financial Risks ............................................................................................................................................. 82
8.5. Risks related to the Company and the organization of the Group ................................................................ 85
8.6. Contingent Liabilities ................................................................................................................................... 87
8.7. Risk Insurance and coverage ........................................................................................................................ 88
Governance of the Group and corporate officers ...................................................... 89
9.1. Board of Directors ....................................................................................................................................... 89
9.2. Corporate Officers, profile, offices held and duties assumed ....................................................................... 89
9.3. Group remuneration and benefits to corporate officers ............................................................................... 95
9.4. Undertakings by the mangement to hold shares ........................................................................................ 105
9.5. Transactions completed by the management ............................................................................................. 105
9.6. Executive Committee ................................................................................................................................. 106
9.7. Specialized committees ............................................................................................................................. 106
Group structure and share capital .......................................................................... 108
10.1. Share Capital, Treasury Shares and transactions of own shares .................................................................. 108
10.2. Breakdown of the share capital .................................................................................................................. 112
10.3. Employees holding of the share capital ...................................................................................................... 113
10.4. Agreements entered into with subsidiaries ................................................................................................. 114
10.5. Loans granted to small related entities ....................................................................................................... 114
10.6. Delegations to the board of directors realted to increase of the share capital ............................................. 115
Our responsibilities to our people, environment and society .................................... 115
11.1. Our responsibility to the EPS’ people .......................................................................................................... 116
11.2. Our responsibility to Society ...................................................................................................................... 127
11.3. Our responsibility to Environment .............................................................................................................. 132
Corporate governance and internal control ............................................................ 136
12.1. Report of the Chairman of the Board of Directors on the Company’s corporate governance and internal
control process ........................................................................................................................................................ 136
12.2. Report of the statutory auditors on the report of the Chairman of the Board of Directors on the Company’s
corporate governance and internal control process .................................................................................................. 136
12.3. Fees of the statutory auditors ..................................................................................................................... 137
Methodology Note ............................................................................................... 137
13.1. Reporting boundaries and indicators selection criteria ............................................................................... 138
13.2. Calculation criteria ..................................................................................................................................... 139
Concordance table ................................................................................................ 140
Annex 1 - 2015 Financial Statements of Electro Power Systems S.A……………………………142
Annex 2 - Statutory auditors’ report on the financial statements of Electro Power Systems
S.A………………………………………………………………………………………………………………194
Annex 3 - 2015 Consolidated Financial Statements .......................................................... 197
Annex 4 - Statutory auditors’ report on the consolidated financial statements .................. 278
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Annex 5 - Report of the chairman of the board of directors on the internal control process . 281
Annex 6 - Statutory auditors’ report on the Report of the chairman of the board of directors
on the internal control process ....................................................................................... 322
Annex 7 – Corporate social and environmental responsibility report .. Errore. Il segnalibro non è
definito.
Annex 8 - Independent verifier’s report on consolidated social, environmental and societal
information presented in the management report ........................................................... 363
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Persons Responsible
1.1. Person responsible for the Annual Financial Report
Carlalberto Guglielminotti, Managing Director of the Company, Chief Executive Officer of the Group.
1.2. Statement of the responsible for the Annual Financial Report
“I hereby certify, after having taken all reasonable measure for this purpose and to the best of my knowledge,
that the information contained in this Annual Financial Report is in accordance with the facts, and that it
makes no omission likely to affect its scope.
I certify, to the best of my knowledge, that the financial statements have been prepared in accordance with
applicable accounting standards and give a fair view of the assets, financial position and results of the
Company and all the undertakings included in the consolidation, and that the management report on page 12
presents a fair review of the development and performance of the business and financial position of the
Company and all the undertakings included in the consolidation as well as a description of the main risks and
uncertainties to which they are exposed.
The consolidated financial statements of the Company for the year ended December 31, 2015 and the
consolidated financial statements of the Company for the year ended on December 31, 2015, presented in this
document were the subject of reports of the statutory auditors set in Annex 2 and Annex 4 which contain no
observation nor qualified opinion.”
29 April 2016
Signed by: Carlalberto Guglielminotti, Managing Director of the Company and Chief Executive Officer of
the Group.
Introduction
EPS is a vertically integrated energy storage company. The ongoing transition in electrical power generation
from fossil fuels and nuclear power to renewable energy sources has given rise to new challenges that have seen
storage technology take the center stage. Storage could a profitable enabler of this transition in three main
ways:
off-grid applications: to serve the 2.4 billion people (35% of the global population) and energy intensive
businesses around the world that are not currently reached by a reliable electric power grid, so as to (i)
replace diesel-fueled generators that currently provide power and capacity to the final users and (ii)
make better use of renewable energy sources.
for grid support: as intermittent and unpredictable renewable energy progressively displaces traditional
power plants, electricity grids increasingly need storage systems that provide both capacity and
flexibility; and
behind-the-meter: commercial and industrial users need systems that manage at the same time back-
up power supply, increasing demand charges and opportunities arising from demand-response
programs.
As a result, having the goal to concretely enable renewables sources to unlock the energy transition, EPS
mission, vision and values are built around environment and sustainability.
The Group has the Mission to unlock the energy transition, mastering the intermittency of renewable energy
sources. We advocate competitive and technology-neutral energy and emission markets.
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Through the seamless integration of the best battery technologies, and our hydrogen and oxygen platform for
long autonomy, we enable renewable energies to power society: reliably, affordably and sustainably.
EPS has a clear vision that of becoming an Energy Company and the world’s reference for a clean energy culture
and smart grid excellence. An innovative company which creates value for stakeholders by providing net-zero
solutions completely safe, reliable, profitable and sustainable.
Seeking innovation and sustainability of the energy transition are the main values of the Group and they are
expressed by three main cornerstones:
reliability for our partners
proactivity for our customers
technological excellence in any solution deployed
This means building value over time through continuing innovation, continuous improvement, transparency and
people development.
Every day, at EPS, we contribute to shaping the energy world of tomorrow, today. Because we want to be the
global reference for a clean energy culture and smart grid excellence. An innovative company which creates
value for stakeholders by providing net-zero solutions completely safe, reliable, profitable and sustainable.
What makes all this possible is great people, inspired by the principles that are woven into the fabric of our
business: innovation, sustainability, reliability, proactivity, excellence.
2.3. Macroeconomic and market scenario
Year 2015 recorded a fell on global growth expectations, slowing to 2.4% from 2.6% in 2014. The
disappointing performance was mainly due to a continued deceleration of economic activity in emerging
and developing economies amid weakening commodity prices, global trade, and capital flows.
A further deceleration of activity in key emerging and developing economies overshadowed a modest
recovery in major high-income countries in 2015. This deceleration was accompanied by further declines in
commodity prices, subdued global trade, bouts of financial market volatility, and weakening capital flows.
Growth in developing countries slowed to 4.3% in 2015, reflecting domestic and external challenges.
Domestic difficulties included slowing productivity growth, policy uncertainty, and eroding policy buffers
that have led to contractionary monetary and fiscal policies in some countries. External headwinds include
persistently low commodity prices, subdued global trade, spillover effects from weakness in major
emerging markets, decelerating capital flows and rising borrowing costs. The slowdown reflects both
cyclical and structural components. Commodity exporters have continued to adjust to steep declines in oil
and other commodity prices. In low-income countries, however, growth has remained robust, as solid
infrastructure investment and consumer spending has partly offset weakening external demand. The
modest pickup in activity in developing countries expected in 2016 and 2017 is predicated on continued
growth momentum in high-income countries, stabilization of commodity prices, still accommodative
monetary policy in major economies, and a steady process of rebalancing in China. The economic
rebalancing in China is continuing and accompanied by slowing growth. Brazil and Russia have been going
through severe adjustments in the face of external and domestic challenges. On average, activity in
emerging and developing commodity exporters stagnated in 2015, as they continued to be hard hit by
declining commodity prices. As a result, the contribution to global growth from these economies has
declined substantially.
Notable exceptions in an otherwise gloomy outlook for developing countries include South Asia (reflecting
reduced macroeconomic vulnerabilities and domestic policy reforms in India), as well as some commodity-
importing countries in East Asia. Growth in low-income countries generally remained robust in 2015, albeit
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slowing to 5.1% from 6.1% in 2014. Some low-income economies showed continued strength (Ethiopia,
Rwanda, Tanzania), supported by large scale infrastructure investment, ongoing mine development, and
consumer spending. However, fiscal risks have increased in several countries in East Africa because of sharp
increases in public debt and contingent liabilities.
Deteriorating growth prospects for developing countries have been accompanied by weakening global
trade, capital flows, and commodity prices. Currency pressures have increased, particularly for some
commodity exporters. Domestic challenges have intensified as well, with elevated private sector debt,
slowing credit, and weaker productivity growth. Prospects of rising borrowing costs combined with
lingering vulnerabilities in some countries could heighten the risk of financial market turbulence.
Further growth disappointments in major emerging economies could disproportionately affect other
developing countries.
In contrast to developing countries, the recovery in major high-income countries gained traction in 2015
and has been increasingly driven by stronger domestic demand, particularly in the United States (where
employment conditions are robust) as labor markets heal and credit conditions improve. However, 2016
growth forecasts for high-income countries have been marked down in light of the effect on the United
States of dollar appreciation and the impact on Japan of slowing trade in Asia.
Conditions for a continued but fragile upturn in the Euro Area still appear in place, despite soft external
demand and rising geopolitical concerns. Albeit gradually dissipating, legacies from the global financial
crisis continue to be felt across high-income countries, limiting both aggregate demand and the underlying
growth potential of these economies.
The recovery remains fragile in Japan despite substantial policy stimulus. With external demand negatively
affected by a slowdown in large emerging market economies, growth forecasts across major high-income
economies in 2016 have been shaded down, but growth should still show some improvement from 2015.
Global inflation is expected to increase moderately in 2016 as commodity prices level off, but will remain
low by historical standards. A modest upturn in global activity in 2016 and beyond is predicated on a
continued recovery in major high-income countries, a gradual slowdown and rebalancing in China, a
stabilization of commodity prices, and an increase in global interest rates that is gradual and stays well
contained. All of these projections, however, are subject to substantial downside risks.
Although it is still a low-probability scenario, a faster-than-expected slowdown in China combined with a
more protracted deceleration in other large emerging markets is a risk.
Empirical estimates suggest that a sustained 1% decline in growth in the BRICS (Brazil, the Russian
Federation, India, China, and South Africa) would reduce growth in other emerging and developing
economies by around 0.8% and global growth by 0.4%. This suggests a substantial risk of contagion
through other emerging markets, with potential adverse effects for some advanced economies as well.
Compounding this risk is the possibility of a protracted decline in potential growth throughout emerging
and developing economies, persistently subdued growth in major high-income countries, and an escalation
of geopolitical tensions. In addition, baseline forecasts of a smooth monetary policy tightening cycle in the
United States are subject to considerable uncertainty. A sudden readjustment of expectations about the
future trajectory of U.S. interest rates could combine with domestic fragilities and policy uncertainties in
some developing countries to generate financial stress.
Given the weak outlook and lingering vulnerabilities in many developing countries, these risks have the
potential to be a source of damaging sudden stops in capital flows in the most fragile economies.
Policies can play an important role in mitigating risks and supporting growth. A combination of cyclical and
structural policies could be mutually reinforcing. In the near term, policy actions need to be focused on
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building the ability to withstand financial market turbulence. Cyclical policies need to be supplemented
with structural reform measures that boost investors’ confidence in the short term and enhance growth
prospects in the long term.
Going forward, global growth is projected to edge up, but at a slower pace than envisioned in the June 2015
forecast, reaching 2.9% in 2016 and 3.1% in 2017-2018. The forecast is subject to substantial downside risks,
including a sharper-than-expected slowdown in major emerging and developing economies or financial
market turmoil arising from a sudden increase in borrowing costs that could combine with deteriorating
fundamentals and lingering vulnerabilities in some countries.
2.4. Climate change trends and global energy storage landscape
By 2040, the world’s power-generating capacity mix will have transformed: from today’s system
composed of two-thirds fossil fuels to one with 56% from zero-emission energy sources. Renewables
will command just under 60% of the 9,786GW of new generating capacity installed over the next 25
years, and two-thirds of the $12.2 trillion of investment.
Electricity sector policy worldwide has predominantly been made in support for renewable energy as
governments seek to address a set of issues from greenhouse gas emissions, energy security,
particulate emissions and public health and systems diversity. However it will be economics, rather
than policy, that will increasingly drive the uptake of renewable technologies. Government support
for renewable energy is fairly evenly split between systems that give direct support such as feed-in
tariffs and market based mechanisms such as auctions and green certificate. In the near future it is
expected from the countries to draw away from expensive transitional programs and embrace
market-based instruments that take account of the asymmetry in information between the
government and the renewables project developers. Wind is already the cheapest form of new power
generation capacity in Europe, Australia and Brazil and by 2026 it will be the least-cost option almost
universally, with utility-scale PV likely to take that mantle by 2030.
Global electricity demand is projected to increase more than 60% between 2012 and 2040 and will
remain the main driver behind capacity additions. Over 54% of power capacity in OECD
(Organization for Economic Co-operation and Development) countries will be renewable energy
capacity in 2040 – from a third in 2014. Developed countries are rapidly shifting from traditional
centralized systems to more flexible and decentralized ones that are significantly less carbon-
intensive. With about 882GW added over the next 25 years, small-scale PV will dominate both
additions and installed capacity in the OECD, shifting the focus of the value chain to consumers and
offering new opportunities for market share.
In contrast, developing non-OECD countries will build 287GW a year to satisfy demand spurred by
economic growth and rising electrification. This will require around $370bn of investment a year, or
80% of investment in power capacity worldwide. In total, developing countries will build nearly three
times as much new capacity as developed nations, at 7,460GW – of which around half will be
renewables. The shape of the world’s capacity mix will be strongly determined by the lifetime cost
that different technologies that can supply with electricity and power. Wind and solar will be the
cheapest source of new electricity supply and in some countries will even start to outcompete
existing fossil fuel plants.
Coal and utility-scale PV will be neck and neck for additions as power-hungry countries use their low-
cost domestic fossil-fuel reserves in the absence of strict pollution regulations. Solar will boom
worldwide, accounting for 35% (3,429GW) of capacity additions and nearly a third ($3.7 trillion) of
global investment, split evenly between small- and utility-scale installations. Large-scale plants will
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increasingly out-compete wind, gas and coal in sunny locations, with a sustained boom post 2020 in
developing countries, making it the number one sector in terms of capacity additions over the next 25
years. But the real solar revolution will be on rooftops, driven by high residential and commercial
power prices, and the availability of residential storage in some countries. Small-scale rooftop
installations will reach socket parity in all major economies and provide a cheap substitute for diesel
generation for those living outside the existing grid network in developing countries. By 2040, just
under 13% of global generating capacity will be small-scale PV, though in some countries this share
will be significantly higher.
Thus it is esteemed that the penetration of renewables will double to 46% of world electricity output
by 2040 with variable renewable technologies such as wind and solar accounting for 30% of
generation – up from 5% in 2014. As this penetration rises, countries will need to add flexible capacity
that can help meet peak demand, as well as ramp up when solar comes off-line in the evening.
In Europe, small-scale solar will increase its share of the capacity mix to 22% from 6% in 2014 as
households and businesses try to offset high retail power tariffs. Meanwhile environmental
legislation, the age of the coal fleet, the EU carbon price and the technology’s relative inflexibility will
nearly halve coal capacity. By 2040, just under 50% of generation will come from variable sources like
wind and solar.
In the Americas, the US story to 2020 will be all about gas, which will see 90% of new build, thanks to
low wholesale prices and coal retirements. From 2020 however it is small-scale solar that dominates,
with 21GW added per year. At the same time, Latin America will invest just under $500bn in wind and
solar as it tries to diversify away from an over-reliance on drought-prone hydro over the next 25
years.
In the Middle East & Africa, some 38% of new capacity will be fossil-fuelled as countries seek to
exploit their substantial reserves. But we also expect 160GW of solar PV as many of these nations
exploit their world-class solar potential. Despite the prevalence of subsidized retail power tariffs, as
much as 40% of the new solar could be small-scale systems, used for example to build mini-grids to
electrify communities sited away from the main grid.
Given the intermittent nature of wind and solar energy sources, it is clear that the ability to store
renewable electricity when it is available in abundance and use it at a later time is very valuable to the
system. Energy storage is recognized as an important component in its transition to a decarbonized
power sector. Storage is promoted as the “game-changer” which could contribute to solving the
volatility challenge of wind and solar electricity generation.
Power systems have to be flexible to allow supply and demand to be balanced at all times. As the
deployment of wind and solar generation increases globally, the challenge of managing increased
volatility of generation grows and hence, the need for increased system flexibility is becoming more
urgent. Electricity storage is an important option to provide this additional flexibility. Energy storage
technologies can be defined to incorporate all forms of energy.
The ongoing transition in electrical power generation from fossil fuels and nuclear power to
renewable energy sources has given rise to new challenges that have seen storage technology take
centre stage. Storage is an enabler of this transition in three main ways:
off-grid solutions: to serve the 2.4 billion people and energy-intensive businesses around the
world that are not currently reached by an electric power grid, so as to replace diesel fuelled
generators and make better use of renewable energy sources.
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grid support: as intermittent and unpredictable renewable energy progressively displaces
traditional power plants, electricity grids increasingly need storage systems that provide
both capacity and flexibility;
behind the meter: C&I clients need systems that manage back-up power supply, increasing
demand charges and opportunities arising from demand-response programs.
2.5. Significant Events in 2015
On January 26, 2015 Electro Power Systems established its headquarters in France, as in 2015 France
would become the main key player in the Europe and Global Energy Transition, by hosting the United
Nations Climate Change Conference in 2015 and gather Europe’s major actors in the Energy
Transition.
On April 8, 2015 Electro Power Systems couples France strategic position in the Energy Transition
with the Company’s ambition in becoming the main player in this sector and announces the launch of
its IPO on the regulated market of Euronext Paris.
On April 21, 2015 Electro Power Systems completes its IPO and raises approximately 14.2M, thus
demonstrating the confidence of investors in the Company’s growth prospects.
On May 2, 2015 Electro Power Systems continues its roadshow, making stops at the main events of
the business and scientific community in the Cleantech energies field. Indeed, Ilaria Rosso, the
company’s Chief Innovation Officer, participates in two highly prestigious events, the 8th Energy
Storage World Forum Europe and the Smart Specialization workshop in the domain of Fuel Cells and
Hydrogen, in Lyon in April.
On May 21, 2015 Société Générale, acting on behalf of Electro Power Systems, exercised the
overallotment option in connection with its initial public offering on the regulated market of Euronext
Paris (compartment C) at 42.6%, resulting in the issuance of 32,855 additional new shares at the
offering price, i.e. €7.30 per share.
On June 16, 2015 Electro Power Systems took part to the World Economic Forum in the “Future of
Electricity Workshop 2015” in India in New Delhi. The event, was attended by the main Asian
stakeholders and investors, provided an opportunity for sharing best practices in the fields of
regulatory design, financing and the new business models for the supply of reduced-emission energy
systems which are capable of optimizing energy accessibility and security.
On September 22, 2015 the Board of Directors of Electro Power Systems approved the Half-Year
Financial Report as of 30 June 2015. EPS 1H15 revenues and other income grew by 31.5% compared
to the first half of 2014. Growth came from the Group’s activities related to backup systems only
(ElectroSelfTM), as HyESS (Hybrid Energy Storage System), the system purely dedicated to energy
storage that will constitute the backbone of the Group’s product offering and the medium and long
term focus of the entire business strategy, will be launched commercially in 2016.
On November 5, 2015 Electro Power Systems choses a highly-experienced energy executive to lead
Asian development and appointed Khek Koon Then Senior Vice President for Singapore. Mr. Khek
Koon Then has the task of developing EPS business on the Asia-Pacific market, thus further
expanding EPS activities worldwide.
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On November 12, 2015 Electro Power Systems announces its third quarter 2015 sales (according to
Italian Gaap) registering a growth of 188% (that results +23% according to IFRS) and confirming its
progress trend.
On December 3, 2015 Electro Power Systems announced the launch of an increase in share capital
up to a maximum amount of 10% of its share capital and approximately 5 million Euros, with
suppression of the shareholders’ preferential right of subscription, by means of a private placement
to institutional investors. The company placed on December 3, 2016, 701.500 new shares, each with a
nominal value of 0.20€, at a subscription price of 6,80 euros per share, issue premium included. The
total amount subscribed was 4.77mio euros, representing 9,77% of the share capital of the Company.
On December 14, 2015 Electro Power Systems announces the opening of the new Turin
manufacturing facility. Like this the company strengths the link between R&D and production and
centralizing in a single location all R&D and hybrid-systems related operations formerly split betwee
Moncalieri (Turin, Italy), Aosta (Italy) and Brighton (MI, USA). The new Turin production hub is a
cutting-edge facility with 3,500 sqm. of floor space, and a production capacity of 2MW per month.
The facility, in addition to the new administrative and logistics offices, will host the final phase of
development of the HyESS (Hybrid Energy Storage System), the system dedicated to hybrid energy
storage that from mid 2016 will represent the central platform of the Group product range and the
medium/long term focus of its commercial strategy.
On December 14, 2015 the Group signed a “Framework Cooperation Agreement” with Enel S.p.A. for
the development of integrated hybrid energy storage solutions for micro-grids and rural
electrification as well as to support in both on- and off-grid settings. The Group’s R&D team will also
cooperate with Enel in exploring further opportunities in technology improvements. The Group and
Enel are also in the process of identifying suitable sites for the deployment of a first-of-a-kind hybrid
solution.
On December 14, 2015 Electro Power Systems became an integrated Energy Storage Group
announcing the acquisition of Energy and System Integration division (“Elvi Energy”) of Elvi
Elettronica Vitali S.p.A. (“Elvi”), the leading Italian system integrator. Elvi Energy includes Elvi’s
equity interest in MCM Energy Lab (“MCM”), a leading R&D laboratory participated by the
Politecnico di Milano.
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Situation and activity of the Group during Financial Year 2015
3.1. Summary of the historical and current Group’s activity
The Group supplies hybrid energy storage solutions adapted to users and infrastructure for which
uninterrupted electricity supply or energy storage capacity is critical. The solutions offered by the Group are
aimed both at end users and actors in the electricity market, notably producers and electricity suppliers and
grid operators responsible for electricity transport and distribution.
With the recent acquisition of Elvi Energy, the Group has further vertically integrated its technology and
business model, enabling the possibility to move from being a producer of hydrogen based energy storage
products, into a provider of fully integrated turnkey hybrid energy storage systems (HyESSTM).
The Group’s value added consists of being able to provide a clean, effective and economic hybrid storage
solution, to allow at the same time the grid stabilization by providing “Flexibility” and storage of energy in
large quantities with a limited footprint providing “Capacity”. This dualism of Hybrid Solutions which can
provide at the same time Flexibility and Capacity to any grid or micro-grid, is aimed to definitely solve the
problem of intermittence of renewables and contribute to the implementation of the energy transition,
namely the development of a balanced electricity generation model on the basis of new renewable energy
sources (wind and photovoltaic power) and of electricity distribution via so-called smart grids.
For the Capacity requirements of any electrical grid, which are today served mainly by gas turbines and
diesel generators, the Group developed an integrated new generation system, the “ElectroSelfTM”,
permitting the storage of electricity utilising hydrogen and oxygen self-produced on site, so as to reduce
the logistical costs associated with the external supply of hydrogen in canisters under pressure. This new
hydrogen and oxygen storage self-rechargeable technology is based on the vertical system integration of
proprietary electrolysis and fuel cell technologies patented by the Group, all of which are managed and
optimised by microelectronics and intelligent software, entirely developed and produced within the Group.
ElectroSelfTM uses electricity to produce hydrogen via the electrolysis of water (the charging phase of the
system – “Power-to-Gas” or “P2G”). The hydrogen may then be preserved as long as necessary, without
any self-discharge, to be reconverted into electricity on demand by virtue of the fuel cell technology (the
discharging phase of the system – Gas-to-Power or “G2P”). The only by-product is water, which is almost
entirely regenerated and is reused for the following charging/discharging cycle.
By virtue of ElectroSelfTM, the surplus of electricity of the grid or of renewable energy sources, for which
availability is not predictable, may be converted into electricity, the availability of which is under the full
control of the user. This system of electricity generation from electricity (“Power-to-Power” or “P2P”) is
intended for emergency supply and long term energy storage applications, in other terms “Capacity”
applications. It constitutes the first genuinely self-rechargeable and vertically integrated hydrogen-based
energy storage technology available in the market. The technology developed by the Group is clean,
economic, controlled at a distance and scalable on a modular basis from 30kWh to 100MWh. Its open
architecture, and the know-how and technology of the Group particularly focused at the system level and
on the so-called “vertical integration”, also permits intelligent coupling with traditional batteries and power
generation technologies, enabling the commercial deployment by the Group of hybrid solutions named
Hybrid Energy Storage Systems or “HyESSTM”.
When coupled with any power generation technology, notably renewables energy sources, HyESSTM
becomes a veritable self sustainable base-load energy source named “Hybrid Power Plant” (“HPP” or
“Hybrid Power Plants”).
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Since 2012, the Group has concentrated its efforts on the industrialisation of the ElectroSelfTM technology
and on the installation of self rechargeable emergency supply systems, storage and smart energy
applications intended for end users and system integrators, mainly for Capacity Applications.
Through the acquisition of Elvi Energy in 2015 the Group became a fully integrated player and system
integrator of energy storage technologies, thus extending its expertise, know-how and commercial
deployment also to Flexibility Applications.
As of the date of this Management Report, also thanks to the acquisition of Elvi Energy, the Group accounts
for a total of 3MW and 607 hydrogen systems installed, 8.7 MW of Hybrid Power Plants, 9.4MW of BESS
integrated, and 44.3MWh of energy stored between Capacity and Flexibility Applications, for a total power
output installed base of 21.1MW.
The Group has until 2014 historically sold its products to end users, such as telecom operators, companies in
the defence sector, grid operators and utilities, which use Hybrid Solutions for (i) providing an emergency
electricity supply for their fixed, mobile or essential network or (ii) guaranteeing the supply of electricity to
sites which are isolated or not permanently connected to the network.
With the appointment of Carlalberto Guglielminotti as new Chief Executive Officer in the second half of
2013 and of Giuseppe Artizzu in 2015, the Group decided to intensify its development efforts in the field of
energy storage at the network level, notably the integration of its systems with renewable energy sources
for off-grid applications, network support applications and smart grids.
The capacity of the Group to achieve these objectives notably rests on its holding of intellectual property
rights and know-how accumulated over more than ten years of experience on site and 20.5 million hours of
functioning, as well as on the quality of its management team. The Group has thus filed a total of 125
patents and patent applications potentially applicable worldwide. On the date of this report, the Group had
68 employees and through its partners in EMEA and Asia accounts a total of 83 resources.
In 2014 and in 2015, financial years during which the Group concentrated almost exclusively on the
industrialization and pre-selling of Hybrid Solutions, gross nominal sales amounted to € 0.7 million and € 1.2
million respectively.
After the close of Q2 2016, the Company will be able to begin commercializing Hybrid Solutions and
particularly HyESSTM to a greater extent, but purchase orders already started and the Group has, at the date
of this report, a backlog of approx. 2.3mio euros.
3.1.1. Markets addressed in 2015
The ongoing transition in electrical power generation from fossil fuels and nuclear power to
renewable energy sources has given rise to new challenges that have seen storage technology take
centre stage. Storage could be a profitable enabler of this transition in three main ways:
(i) in off-grid applications: to serve the 2.4 billion people and energy intensive businesses around
the world that are not currently reached by a reliable electric power grid, so as to replace diesel-
fuelled generators that currently provide power and capacity to the final users and make better
use of renewable energy sources;
(ii) for grid support: as intermittent and unpredictable renewable energy progressively displaces
traditional power plants, electricity grids increasingly need storage systems that provide both
Capacity and Flexibility; and
(iii) behind the meter: commercial and industrial users need systems that manage at the same time
back-up power supply, increasing demand charges and opportunities arising from demand-
response programmes.
14
Our Markets: focus on profitable and unsubsidized business verticals
The market for self-rechargeable emergency backup systems and energy storage applications
intended for end users is already an established market, in which the Group expects to grow its
market share by virtue of its innovative, clean and economical applications.
According to the McKinsey Global Institute1, the energy storage market on the network/grid level is
one of the twelve breakthrough technologies which will contribute to transforming the global
economy. However, energy storage per se does not represent a new concept: more than 100GW of
pump-turbine storage has already been installed on a global scale. It nevertheless is experiencing
strong growth, sustained by the need for an energy transition.
Indeed, energy demand and the global component of electricity in total energy demand have both
practically doubled over the last 40 years, although a large part of electricity production2 is still
provided by fossil resources with a “large carbon footprint”. In this way, 13 billion tonnes of CO2 are
emitted in the world each year by electricity production (including 200 million tonnes solely from
diesel generation), i.e. 40% of global emissions3.
In this context, the States and the principal national actors in the energy sector are thus led to favour
and support technologies and energy production models which are more respectful of the
environment, such as production from renewable energy sources thus entailing the deployment of
storage solutions at the level of the distribution network.
This vision also complies with the position of the International Energy Agency (“IEA”), according to
which, implemented energy policies should have the objective of producing 65% of electricity from
renewable energy sources by 20504, and of reducing emissions of CO2 linked to energy production by
50%.
Electricity storage solutions are also called on to play a decisive role in the production of electricity
close to the point of consumption and within the context of a smart grid. The concept of “distributed
generation”, namely electricity produced in small quantities close to points of use, rather than in
1 McKinsey Global Institute, Disruptive Technologies; Advances that will transform life business, and the global economy, May 2013, pp 96-97. 2 McKinsey Global Institute, Disruptive Technologies; Advances that will transform life business, and the global economy, May 2013, pp 96-97. 3 International Energy Agency, Taking on the challenges of an increasingly electrified world, 12 May 2014, http://www.iea.org. 4 Technology Roadmap, Energy Storage, International Energy Agency, OECD/IEA, 2014, p. 26.
15
large quantities at a limited number of production sites, is gaining ground, since it should permit the
grid to manage the matching of supply and demand at all times in a more rational way.
Another factor militating in favour of the deployment of energy storage systems lies in the possibility
for developing countries, which benefit from strong growth, to contribute to satisfying their energy
needs. Advanced energy storage systems indeed permit the supply of off-grid zones and may also be
used in support of current electrical grids, in order to increase their capacity until new infrastructure is
implemented.
In the light of the above, by 2025, energy storage applications (notably including the increase in
storage capacities arising from adaptation to the needs of Electric and Hybrid Vehicles) may
represent a potential market of US$ 90-635 billion per year5. It is moreover forecast that € 280 billion
will be invested in energy storage by 20306.
3.1.2. Principal advantages of the Group leveraged in 2015
(i) A vertically integrated Hybrid Energy Storage technology for Capacity and Flexibility
requirements of any electrical grid
ElectroSelfTM is a self-rechargeable, vertically integrated modular system consisting of a P2G module,
a storage unit and a G2P electricity supply system, all of which are managed by microelectronics and
intelligent software, fully developed and produced within the Group. Vertical integration, further
leveraged by the newly acquired system integration competences of the Group through the
acquisition of Elvi Energy, allows the provision to the client of a complete, ready to use storage
solution, by optimising the overall performance of the system, the direct and indirect costs and the
constraints of installation.
The power-input and power-output of the ElectroSelfTM system may easily be increased by placing
several P2G and G2P modules in series, and the autonomy of the system, i.e. the energy stored, can
be sized by simply increasing the size of the gas tank, or reservoir, at a very limited marginal cost.
This is the reason for which the ElectroSelfTM technology is suitable for “capacity” applications, i.e.
where storage is required to enable a RES-intensive electricity system to serve loads in non-recurring
demand/supply conditions (constrained or scarcity-priced supply, extreme demand, etc.).
For lithium-ion, redox, lead-acid or sodium-sulphur batteries (“Battery Technologies”), for a fixed
discharge rate, any increase in energy storage capacity (megawatt-hour) entails an increase in the
power range (megawatt) and hence a proportional increase in the cost, size and footprint of the
battery system. Conversely, in the case of ElectroSelfTM, the storage capacity may be increased
independently of the supply system or the power range, hence requiring a smaller marginal
investment and a limited increase in the volume, in the footprint and in the weight of the system. In
this respect, this allows the Group to offer solutions which correspond exactly to the “Capacity”
requirements of any grid or micro-grid.
On the other hand, Battery Technologies are more suitable for the so called “flexibility applications”,
i.e. where storage is required for power-intense despatchability of large and small electricity systems
featuring high penetration of intermittent energy sources (frequency and voltage regulation,
operating and contingency reserves, etc.).
5 McKinsey Global Institute, Disruptive Technologies: Advances that will transform life business, and the global economy, May 2013, p. 98. 6 Boston Consulting Group, Revisiting Energy Storage, There is a Business Case, February 2011, p. 15.
16
The majority of the grid applications and electricity systems (both on-grid and off-grid) require both
Flexibility and Capacity, and this is the reason for which the Group from 2015 has entirely focused the
business and technology development on Hybrid Solutions, particularly on HyESSTM, which couple
the Capacity intensiveness of ElectroSelfTM with the Flexibility of a Battery Technology: all integrated
in one single system, scalable, flexible and sizeable in terms of both Capacity and Flexibility, which
thanks to the acquisition of Elvi Energy can now be sold directly to the end-user on a turn-key basis.
Chart on Capacity and Flexibility on Small Scale and Grid Scale
(ii) An economic and clean energy storage solution
The profitability analysis carried out with market operators on site demonstrates an economic
advantage of the Group’s solution for different types of energy storage applications, particularly for
Capacity Applications. At the grid level, it highlights a cost per kilowatt-hour for Capacity applications
of around a third of the average price of other technologies, while offering superior performance in
terms of autonomy and long-term storage, also permitting the use of production capped due to a
long duration of discharge7.
Moreover, while the cost of the Group’s hydrogen systems of the Group is currently between € 200-
500/kWh, the cost of stored electricity may be easily reduced to around € 100 kWh by simply
increasing the storage capacity, with evident advantages for off-grid applications and for energy
storage in large quantities, i.e. Capacity Applications. Furthermore, with Hybrid Power Plants, i.e. the
coupling of the Group’s Flexibility and Capacity technology with solar or wind, particularly in tropical
zones, the Group estimates the global cost of electricity generation of a Hybrid Power Plant can
7 In particular, starting from a duration of discharge of 6 hours (Group study, please refer to paragraph 6.4.2(iii) of the
Registration Document that will be published by 30 April 2016).
17
achieve around € 150/MWh8, i.e., on a non-subsidised basis, significantly cheaper than any diesel
production and competitive with regard to traditional and polluting centralized electricity traditional
systems.
(iii) Know-how and on site experience which are hard to replicate
The Group’s open architecture, vertically integrated technology and expertise in system integration
represent the result of almost 10 years’ research and development, initially undertaken within the
Politecnico di Torino (specialising, among other things, in hydrogen-based applications) and
Politecnico di Milano (specialising, among other things, in energy and power conversion
applications). This experience is difficult to replicate and hence represents a competitive advantage
over any new entrants to the market.
The intellectual property of the Group is protected by 125 patents and patent applications in 48
countries, resulting from a total of 59 submitted patent applications, for which 66 patents have
already been granted.
The portfolio of patents covers the entire hydrogen value chain and the system integration:
production of hydrogen, storage of hydrogen and production of electricity on the basis of hydrogen,
emphasising in particular, at the system level, the intelligent management of energy and system
integration. At the same time, numerous innovations developed at the level components (e.g. power
electronics and control, master controllers, source codes of the software to manage grid and micro-
grids, flow field of the fuel cell, and firmware of the PCs) are managed as industrial secrets, that when
coupled with registered patents leverage and increase the protection of the intellectual property.
The Group has thus cumulated know-how which, in the opinion of its directors, is not easy to
replicate, considering the requirements of its end users, operating conditions and integration with
existing infrastructure.
Dr. Ilaria Rosso, Chief Innovation Officer and co-founder of the Group, has to her name more than 50
articles and scientific publications and in 2011, won the European prize rewarding women in the
innovation sector, “European Prize for Women Innovators”. On March 9, 2015, she attended the
“Women in Science, Research and Innovation Working Lunch” organized in Brussels by Mr Carlos
Moedas, European Commissioner for Research, Science and Innovation.
Giuseppe Artizzu, Executive Director Global Energy Strategy and board member, on 31st March 2015,
has been invited by the Italian National Assembly and on 21st January 2016 at the “Congreso Futuro”
in Chile to join a panel of experts on energy storage.
In June 2015, Carlalberto Guglielminotti, Managing Director of the Company, was invited by the
World Economic Forum to the “Future of Electricity Workshop 2015” in New Delhi India. It was an
important phase in the development of the “Clean Power 50 Alliance”, a joint initiative launched by
the World Economic Forum and India, designed to promote the collaboration between public
organizations and the private sector with a view to stimulating investments in electric infrastructures
and decarburization.
Daniele Rosati is regularly invited as visiting professor to the Polytechnic of Milan where he teaches
at the last year of the main course in Power Plants Electricity for engineers. He has also been invited
8 Source: Group.
18
to teach at the University of Pavia at the course of Energy Conversion, Renewables, Microgrid and
Energy Storage.
3.1.3. 2015 Group Mission, Strategy and action plan
The Group’s mission is focused on unlocking the energy transition, mastering the intermittency of
renewable energy sources. The Group advocates competitive and technology-neutral energy and
emission markets. Through the seamless integration of the best battery technologies, and the
Group’s hydrogen and oxygen platform for long autonomy, the Group intends to enable renewable
energies to power society: reliably, affordably and sustainably.
The Group’s Strategy is focused on three specific areas:
1. Grid Support: the Group want to provide grid operators and renewable energy players with
integrated storage solutions to master the intermittency of renewables, and address the
burgeoning demand for primary, secondary and tertiary reserve, reactive power and black-start
capabilities, at a lower cost for consumers, cutting electricity bills.
2. Distributed Smart Storage: the Group intends to compress energy bills, by peak-shaving the
consumption profile of commercial and industrial users, optimizing the utilization of
distributed generation, enabling participation in Demand Response schemes, and delivering
sustainable back-up power.
3. Off-Grid and Isolated Grids: the Group intends to enable renewables as a reliable and
affordable stand-alone power source in emerging markets, displacing diesel and oil-fired
generation. The Group wants to foster a bottom-up, decentralized model of greenfield
electrification, providing clean energy 24/7 at cost lower than diesel generation, the only
alternative in such areas.
This action plan of the above strategy is built around three lines of action: (i) accelerating the sale of
energy storage systems to end users (Hybrid Solutions); (ii) developing the energy storage market on
the grid scale and smart grids by marketing its hybrid solution (HyESSTM); and (iii) being a player in
the energy transition by deploying systems intended for off-grid applications at a lower cost than
that of traditional electricity generation (Hybrid Power Plants).
(i) Accelerating the sale of the of energy storage systems to end users (Hybrid Solutions)
Historically, the Group has principally been interested in systems for end users, in particular in the
telecommunications sector, where a significant number of telecom towers require an uninterrupted
electricity supply and emergency supply solutions.
The Group now intends to intensify its campaign of deployment of Hybrid Solutions systems not only
with telecom operators, but also with data centres and hospitals and facility management companies
in developed countries, where requirements are stricter for on site emergency backup power
concerning standards of reliability and remote management, as well as in emerging countries, where
electrical grid infrastructure is limited, unstable and unreliable.
In order to facilitate the deployment of this strategy in emerging countries, the Group shall
implement the so-called “OPEX”, or “payment for use” model, in which end users entrust the initial
investment in the equipment and its management to the Group through long-term agreements, in
order to minimise their investment expenses and stabilise their annual operating expenses. The
OPEX model permits the generation of constant revenues and cash flows.
19
(ii) Developing the market for energy storage on the grid scale and for smart grids by selling
its hybrid solution (HyESSTM)
The Group’s strategy aims at overcoming constraints linked to the grid instability, to the intermittent
nature of renewables sources, and price volatility and is based on the deployment of Hybrid Solutions
as a mean of energy storage at all levels (production, transport and electricity distribution).
Within the energy storage market on the grid scale and particularly for smart grids, no technology
can be an “exclusive” solution and the Group considers that only a hybrid solution, such as HyESSTM,
which uses different proprietary technologies in order to maximise power, storage capacity and
Energy Density, while minimising the costs and the footprint of the proposed storage solution, is
compliant with the needs and constraints of grid operators.
The Group has begun in 2015 to promote the HyESSTM solution (presently in the pre-
commercialization phase) and to collaborate with international operators, producers and suppliers of
electricity from renewable energy sources. On December 2014 the Group signed a “Framework
Cooperation Agreement” with Enel for the development of integrated hybrid energy storage
solutions for micro-grids and rural electrification as well as to support in both on- and off-grid
settings. The Group’s R&D team will also cooperate with Enel in exploring further opportunities in
technology improvements. The Group and Enel are also in the process of identifying suitable sites for
the deployment of a first-of-a-kind hybrid solution.
The Group will pursue the promotion of HyESSTM technology among electricity producers and
suppliers, infrastructure operators, grid operators providing transport and distribution, and public
sector authorities, first in Europe, Latin America, United States and Africa, then in Canada, China and
the Middle East, and lastly in Asia.
The Group’s ambition is not so much to position itself directly against technologies which use
batteries, but rather to deploy technology-neutral Hybrid Solutions integrating Battery Technologies,
with the Group’s solutions capable of being coupled immediately to any other power generation and
storage technologies to improve performance, to reduce costs, footprint and environmental impact
of any energy storage system deployed.
(iii) Being an actor in the energy transition by deploying systems intended for off-grid
applications at a lower cost than traditional electricity generation (Hybrid Power Plants)
The success of the energy transition is subject to the existence of smart grids and hence of high
density energy storage solutions, able to offset the intermittent nature of renewable energies and to
facilitate their deployment. The Group estimates that Hybrid Solutions, particularly when enabled
with hydrogen, which is one of the elements with the highest Energy Density9, will be one of the keys
to the energy transition.
The Group’s Hybrid Power Plants are particularly well-suited to the storage of large quantities of
energy, among other things, in remote regions and for long periods of time, since the Group’s
Capacity technologies include remote management, are not subject to the phenomenon of self-
discharge, and may be used regardless of the ambient temperature conditions and air purity.
The Group intends to propose its solutions to the builders of grid and renewable energy infrastructure
and to public authorities to include its storage systems in zones where electrical network
infrastructure is limited, unstable and unreliable and in island, remote or off-grid regions. Indeed, in
these regions, electricity costs are high, the transport network is inefficient, and storage needs are
9 Uranium and fossil fuels are excluded from the analysis.
20
constantly increasing. Tropical zones, South America, Russia, Asia, Africa and the Middle East will be
targeted by the Group in its strategy map.
3.1.4. Presentation of the current technology and portfolio of products
(iv) ElectroSelfTM: an innovative hydrogen storage technology for Capacity: like a diesel
generator, but clean and more efficient
a) General presentation of the ElectroSelfTM platform
ElectroSelfTM is a patented technological platform, entirely integrated into an open architecture and
composed of the following three basic elements:
1. the Power-to-Gas module for production of hydrogen from electricity (P2G): high-
pressure electrolyser, producing hydrogen and oxygen on site at a pressure of 30 bar by
electrolysis of water, specifically designed for combination with the ElectroTM fuel cell;
2. a storage unit: a storage module for hydrogen and oxygen, or a gas storage module, able
to integrate every storage technology, including the storage of hydrogen in solid form and
storage by compression, permitting storage of up to 120kWh in less than 1m2; and
3. the Gas-to-Power electricity generation module based on hydrogen (G2P): supply
system based on a fuel cell, named ElectroTM, producing water and electricity from
hydrogen and oxygen (pure or undiluted in air) with a power output of 1.5 to 10kW per
module.
The integration of these components, entirely developed and manufactured by the Group and its
principal partners, constitutes the ElectroSelfTM module, a scalable hydrogen storage module
permitting electricity generation applications on the basis of electricity (P2P), by offering power
modules of up to 25kW. The complete integration of the system was notably made possible by:
the implementation of innovations developed by the Group, such as technologies for
operating direct oxygen fuel cells with specific electrolysis and liquid cooling; and
the patented and integrated open architecture method and intelligent management,
associated with dedicated power and control electronics, which the Group developed
and manufactured in-house.
21
Our Capacity Technology: like a diesel generator
(v) Principal characteristics of an innovative system integration architecture
The ElectroSelfTM platform is not simply the integration of a system of power supply by a fuel cell to
an electrolyser, but a genuine technological platform providing hydrogen storage solutions and
benefiting from innovative functionalities and components which are vertically integrated into an
open architecture.
By virtue of vertical system integration, as well as of the development and internal manufacture of all
of the basic components, it is possible to capitalise on the six principal characteristics of this
technological platform:
a) the regeneration of the combustible on site;
b) a fuel cell with innovative properties: ElectroTM, a technology permitting megawatt size to be
achieved;
c) recovery of water, permitting a single cycle in a closed circuit;
d) vertical system-integration permitting open architecture and the combination with batteries
for Flexibility Applications;
e) remote management: continuous monitoring permitting a process of permanent
improvement; and
f) observed on site reliability permitting applications of the technology on the grid scale to be
envisaged.
(vi) The hybrid energy solution storage of the Group: HyESSTM
The Group’s HyESSTM system offers a synergistic combination of Capacity and Flexibility; in this way,
it exceeds the performance of any system using traditional batteries or hydrogen taken alone. The
integration of these two technologies into the HyESSTM system also entails a reduction in the
footprint of all of the installed batteries.
22
The solution proposed by the Group, presently in the pre-commercialization phase, provides
coverage of a large range of supporting applications for the network in a smart grid context, hour by
hour or on a seasonal scale. Its global cost is lower than that of traditional batteries or of other
chemical storage solutions, due to the piloting of the optimisation of performance guaranteed by the
control electronics and management methods developed by the Group.
This solution presents the advantage of being able to calibrate power and energy independently, by
optimising recovered energy, by minimising the cost of investments (up to 40% of economy) and the
required space (50% smaller footprint than traditional batteries), as well as increasing the quantities
of stored energy (up to ten times those of traditional batteries) with a global electrical effectiveness
(“round trip”) (i.e. without a heat exchanger) able to reach 60%. Lastly, the HyESSTM system can
restart cold.
The HyESSTM storage solution recently proposed by the Group to the market may consist (i) of a Li-
ion battery, characterised by a charge/discharge effectiveness of 92.5%, i.e. a global efficiency
(“round trip”) of 85% and (ii) of the modular hydrogen storage system of the Group, adapted to the
required capacity, consisting of an electrolysis module with average electrical effectiveness of 60-
73%, as well as a pure oxygen DOX fuel cell module (ElectroTM) with liquid cooling (including the
water recovery system), electrical effectiveness for a constant regime of 50-57%, or global electrical
effectiveness (“round trip”) of 38-42%10. In other terms, when coupled with renewables, a real Hybrid
Power Plant which can replace the 600GW of installed fleet of diesel generators, but with a lower
levelized cost of electricity, completely clean and with a higher efficiency11.
When the renewable energy source (or the network supply) is available, the integrated architecture
of the HyESSTM system permits the charging of the battery with surplus energy, then, once the
battery has been fully charged, the automatic switching of the energy surplus deriving from the
renewable energy source or from the network to the P2G module, which is then activated and begins
to produce hydrogen and oxygen. In this way, the excess energy not used by the network or by the
battery is stored in the form of hydrogen, with no waste or need to curtail. When electricity has to be
provided to the grid, this initially derives from the battery and production of hydrogen (P2G) is
interrupted in order to give priority to continuity of load of the great. Once the battery reaches a
certain discharge threshold, the G2P module ensures the continuity of load on the grid.
3.1.5. Competitive Positioning and markets targeted by the Group in 2015
In addition to the positioning in the three business verticals outlined e (grid support, off-grid and
smart distributed storage), the positioning of the Group can be seen also from the customer
perspective:
(vii) End-user applications - emergency power supply, distributed smart storage solutions
and off-grid electrification: in this segment, the client is the end user of the system and
needs, for example, (a) reduction in the demand charges applied to lower the electricity bill,
or (b) a power supply in the event of an outage caused by natural events or by any other
cause relating to the instability of the network, or (c) it needs energy over-the-clock because
it is located on an island or in another zone outside of the general transmission network and
which hence uses electricity produced by diesel generators.
10 The Group's calculations are based on the “round trip” effectiveness, itself based on the multiplication of electrolysis
modules and fuel cells.
11 Diesel generators have on average a maximum round trip efficiency of 30%.
23
(viii) Utilities and TSOs grid support applications - integration with renewable energies and
smart grids: in this segment, the client is not the end user, but a market operator, generally
a service or a public entity, a grid operator (TSOs, DSOs) or a company in the energy sector
(utilities, IOUs, vertically integrated oil and gas companies).
(ix) End-user applications, emergency power supply, distributed smart storage solutions and
off-grid electrification
(a) Natural events, grid instability and increasing demand charges and electricity bills
Natural events, such as hurricanes, tornadoes, storms and other meteorological phenomena,
the frequency of which appears to increase with climate change, cause long-term power
outages and translate into massive losses. Their economic impact on energy sourcing is very
significant, with annual costs of grid instabilities estimated to be € 100 billion, notably for US
companies12.
Other causes of grid instability relate to the incapacity of grid operators to balance the system
correctly when dealing with consumption peaks, fluctuations in output or grid incidents.
Production must nevertheless be equal to consumption at all times.
A certain number of countries, in Africa and the Middle East, India or the Asia-Pacific zone, for
example, suffer from very significant power outages due to the instability of electricity supply.
It has been estimated that by 2025, developing countries will have annual consumption of
13,000TWh, even though the power outages suffered by these countries represent an average
of 2-70 hours per month13. Moreover, outages of the North American grid, in particular in the
United States, are significant. The United States experienced 1,243 hours of interruption to the
network in 2012 for a total of 2,808 incidents, affecting almost 25 million individuals14. The use
of stored energy for the purposes of ensuring a supplementary or emergency electricity supply
may have a positive economic impact of US$ 25-150 billion per year by 202515, by permitting
the minimisation of power outages.
From this perspective, the use of an emergency power supply system guarantees that a device
will receive a stable supply over a period ranging from several minutes to several hours, or even
several days. The majority of uninterrupted supply systems (“UPS”) only use batteries and it is
necessary to couple the system with a diesel generators in order to guarantee an emergency
supply for a longer period (i.e. Capacity). Since diesel generating units need several seconds to
start up, batteries are used to guarantee the relay between the power outage and the effective
start-up of the generating unit, in order to allow time for the latter to start running. These
systems have proven to be unreliable16, ineffective and unable to guarantee all of the
monitoring and control functionalities demanded by market standards.
12 McKinsey Global Institute/EPRI “The smart grid: An Introduction”, drawn up at the request of the US Energy Department by Litos Strategic
Communication. http://energy.gov/sites/prod/files/oeprod/DocumentsandMedia/DOE_SG_Book_Single_Pages(1).pdf 13 McKinsey Global Institute, Disruptive technologies: Advances that will transform life, business, and the global economy, May 2013, p. 100.
14 Eaton’s 2012 Blackout Tracker.
15 McKinsey Global Institute, Disruptive technologies: Advances that will transform life, business, and the global economy, May 2013, p. 99. 16 By way of example, the Sandy super storm felled 25% of the relay antennas in the 10 States of the affected zone, causing interruptions to mobile
telecommunications networks in more than 150 counties. After the “Derecho” storm deprived part of the region of Washington DC of electricity in the
summer of 2012, 2.3 million people were unable to dial emergency numbers for four days, in part because the emergency diesel generating units on the
premises of the operator Verizon did not function (“Impact of Derecho in June 2012 on communications networks and services”, FCC report of January
2013).
24
Diesel generating units require regular maintenance (generally several maintenance
inspections per year), are generally located outdoors due to toxic emissions and the noise
which they produce, and are susceptible to mechanical failure due to their large number of
moving parts. Batteries are more reliable and more effective, but their power output depends
on their mass and volume (i.e., high-capacity batteries are extremely heavy and voluminous),
they must be regularly recharged and their capacity and performance degrade over time.
In addition, grid operators are increasingly charging to end users more expensively the so
called “demand charge”, i.e. the fee to be paid according to the maximum peak load
consumption of the meter installed by the customer.
In other terms, grid operators are increasingly trying to get some flexibility directly from end
users, via a tariff system where the capacity component (i.e. the demand charge) is given an
increasing weight, rather than the actual energy produced. This is especially true for
commercial and industrial users, particularly in USA and Italy. The main options therefore are:
interruptible service contracts: some users may accept the risk of having grid-supplied
power cut off for brief periods of time;
peak shaving: in cases where a user needs maximum power usage only for a limited
period of time, that user could consider various options to reduce the peak level
required and the related demand charges; and
demand response: an opportunity for consumers to play a significant role in electric
grid operations by reducing or shifting their electricity usage during peak periods in
response to time-based rates or other forms of financial incentives.
All the options outlined above can today be addressed by storage solutions and particularly by
Hybrid Solutions, which can couple the backup power needs of end-users with the possibility
for the customer to make revenues by:
(A) accepting interruptible energy service contracts as the storage system will guarantee
Capacity and business continuity in case of interruption;
(B) reducing the demand charge and the nominal peak of the meter requested to the grid
operator as the storage system will guarantee an additional power peak, and therefore
Flexibility, when necessary; and
(C) participating through the energy storage system installed to the Demand Response
programs activated in several countries for both Flexibility and Capacity Applications.
(b) Power generation in island zones and off-grid areas
Market description and opportunities
Today, 1.4 billion people have no access to an electricity grid17. Another 1 billion people
are connected to unstable networks and are regularly exposed to power outages18. It may
thus be considered that 2.4 billion people (i.e. around 35% of the global population) are
“under-electrified”19.
When the connection of a major distribution network to the transport network is not a
feasible option from a technical and economic perspective, on site energy is generated
off-grid. In this context, since the production of electricity generally derives from thermal
17 McKinsey Global Institute: Disruptive technologies: Advances that will transform life, business and the global economy, p. 98. 18 A.T Kearney report in collaboration with GOGLA, Investment and Finance Study for Off-Grid Lighting, June 2014.
19 IEA (2012); IEA (2013).
25
plants powered by fossil fuels, like combined cycle plants or diesel electrical plants, the
cost of electrical energy is heavily dependent on the cost of these fossil fuels, their
logistics and their transport. Moreover, competition between local electricity producers is
generally weak or even non-existent. The cost per kilowatt-hour delivered to the end user
may thus be up to 3 to 4 times higher than that associated with connection to the
network.
Islands, such as the Antilles, the Philippines, Indonesia or Hawaii and more generally the
equatorial zone, are particularly concerned by this type of situation. Indeed, electricity
generation there is guaranteed by diesel generating units, despite their high production
costs (at least € 0.25/kWh), simply due to the absence of simple and feasible alternatives.
This is a significant market, part of which is represented by installed diesel production
capacity of 600GW20, for which the Group estimates that half is installed on off-grid sites
running over-the-clock21.
The need to reduce dependence on fossil fuels and to reduce energy costs has guided the
investment policies of certain of these countries in recent years. Their energy policies
have concentrated on the creation of renewable energy plants, such as solar plants and
wind farms. Today, numerous islands have significant renewable energy capacity or plan
to invest in this sector.
Ultimately, despite considerable investments, these countries have not yet been able to
guarantee their independence from fossil fuels, or to reduce their levels to be comparable
with those of the United States or of Europe. These countries are still far from being able
to exploit the full potential for energy production by their renewable energy plants.
Consequently, new energy storage solutions produced by renewable energy plants are
becoming an urgent need.
The use of energy storage technologies, combined with renewable energy sources, on
islands and for off-network sites represent a considerable economic opportunity for
companies in the energy storage sector, not to mention the substantial environmental
benefit of the corresponding reduction of CO2 emissions. Being able to provide electricity
to remote regions of developing countries may be estimated US$ 50 billion per year by
202522.
Another potential market segment in future years is that of connected end users who
choose to leave the grid for economic reasons. A study realised for the Edison Electric
Institute, a US electricity sector association, highlighted that electricity companies are
currently facing “challenges” comparable to those with which the fixed line telephone
industry had to face when mobile telephone industry appeared. Indeed, suppliers and
producers of electricity fear that more companies and end users will make use of solar
energy, wind power and of other sources to produce their own energy, likely to reduce
their number of clients and hence their revenues, for similar grid operation costs.
Suppliers and producers of electricity would then be obliged to apply higher tariffs, and
would lose more clients, further aggravating their position. This phenomenon is termed
the “death spiral theory”23.
20 The Boston Consulting Group, Revisiting Energy Storage, There is a Business Case, February 2011, p. 10. 21 Siemens Corporate Technology, June 2014, p. 58. 22 McKinsey Global Institute, Disruptive technologies: Advances that will transform life, business, and the global economy, May 2013, p. 99. 23 Financial Times, US Energy: Off the Grid, Ed. Crooks, 13 January 2015.
26
The Group does not have the objective of counteracting the “death spiral”, or of
positioning itself in competition with electricity suppliers and producers, but simply
wishes to demonstrate that the solutions which it develops represent a real opportunity
for clean and profitable production, which forms part of the energy transition.
Profitability analysis applied to the Group’s solutions
The profitability analysis carried out with market operators on site reveals a cost of its
HyESSTM of between € 200-500/kWh and a cost of electricity generated by a Hybrid
Power Plant composed by a HyESSTM and renewable energy sources between € 150 and
300/MWh.
In order to compare the economic competitiveness of the different electricity production
techniques, we must draw on the Levelized Cost of Energy (“LCOE”)24, expressed in
€/MWh of net power generated.
The LCOE may be analysed as the cost necessary for producing 1MWh of electricity, i.e.,
the minimum price at which electricity should be sold by the production plant to achieve
the profitability threshold over its useful life. It is defined as the ratio between the current
value of the sum of costs borne and the current value of energy production over the
useful life of the site. The costs to be assumed in calculating the LCOE25 are as follows:
the basic construction costs;
the fuel costs;
the operation and maintenance costs;
the costs of restoration and decommissioning; and
the carbon balance, applied solely to fossil technologies, in order to take into
account the charges to be applied to these technologies by way of CO2 into the
atmosphere.
An analysis conducted by Lazard26 for the United States arrives at the following
conclusions: renewable technologies are competitive in terms of costs with conventional
production technologies in certain types of scenarios. Although tax subsidies remain an
important element in the economics of renewable energies, over the last five years, wind
power and photovoltaic energies have become increasingly competitive in economic
terms, including on a non-subsidised basis, by virtue of the reduction in the costs of the
components of its systems and the improvement in yields27.
While renewable energy production is becoming competitive in terms of LCOE, the use of
photovoltaic and wind power energies, combined with energy storage permitting the
development and optimisation of renewable production, is also proving increasingly
interesting, including when it is coupled with traditional batteries.
In particular, as is illustrated by the following table, by hybrid combining energy storage
through traditional batteries with wind power or photovoltaic energy, the cumulative
LCOE may be reduced significantly, with regard to the LCOE of diesel generators.
24 The LCOE is expressed in €/MWh of net power generated.
25 The calculation hypothesis of the LCOE is that the discount rate and the electricity price are constant over the useful life of the site.
26 2015 Lazard’s levelized Cost of Energy Analysis – Version 8.0. 27 The average LCOE of wind (“WM”) and solar (“PV” /large-scale crystalline photovoltaic technology) energies have fallen, respectively from US$ 135/MWh
to US$ 59/MWh (i.e. a reduction of around 58% over 5 years) and from US$358/MWh to US$ 79/MWh (i.e. a reduction of around 78% over 5 years).
27
Comparative analysis of the LCOE
Source: Group Analysis
The Group considers that there is a genuine opportunity today for replacing the installed
diesel production park of 600GW, by offering cheaper energy to 35% of the world’s
population, representing for the Group a market opportunity of around € 900 billion28,
and which would allow a reduction in emissions of around 200 million tonnes per year, i.e.
approximately half of the annual emissions in France29.
Utilities and TSOs grid support applications: integration with renewable energies and
smart grids
(c) Renewable energy production
28 Taking account of 1.5 billion of investments per megawatt. 29 The Boston Consulting Group, Revisiting Energy Storage, There is a Business Case, February 2011, p. 10.
28
The rapid deployment of wind power and solar energy sources contribute to reducing the
carbon footprint of the electricity grid. However, wind power and solar energy are
resources dependent on meteorological conditions and their instability poses a number of
problems for functioning of the electrical grid, in terms of stabilisation mechanisms,
regulation and offsetting. The bottlenecks in the electricity supply system result from an
excess of renewable energy which cannot be transferred to the grid and that is
consequently curtailed by the operators of the supply grid, in order to balance the power
produced and demand for energy and/or to permit the allocation of electricity deriving
from other sources.
The quantity of curtailed energy (i.e., the energy which is not used by the network and
which is hence wasted) should increase with the increase in renewable electricity
production. The following graph illustrates the forecasts in terms of capping of
production by type of technology (wind power installations, distributed and non-
distributed photovoltaic installations, i.e. plants with installed capacity of more or less
than 1MWh respectively). It shows that the capped production could represent almost
600TWh by 202330.
Curtailed production of renewable energies, global markets: 2013-2023
Source: Group
In countries where market penetration by renewable energy sources (in the combined
production of electricity) is important, the economy and the functioning of the market of
electricity on the grid-scale are profoundly affected, since: (i) the traditional models of
intraday and seasonal prices are transformed, and (ii) demand for services auxiliary to the
grid increases.
With regard to price models, the increase in solar energy production during the middle
hours of the day entails a significant reduction in the difference between the electricity
price during the daytime and at night.
30 Navigant Research: Market Data: Hydrogen Infrastructure Fuel Cells, Power-to-Gas, and Laboratory Applications: Global Market Analysis and Forecasts,
p. 7.
29
Conversely, an increase in the price difference arises at the end of the afternoon, at
Sunset (when solar energy production diminishes), coinciding with increased demand for
lighting.
As the following graph illustrates, solar energy production significantly determines the
seasonal model of equilibrium between supply and demand and consequently influences
the price of electricity.
Pan-European electricity over a year (hours on the x-axis, and load expressed in megawatts on the y-axis)
Source: ENTSOE-E, Citi Research
The increase in market penetration of intermittent renewable energy sources requires
grid operators to ensure they have recourse to larger secondary reserve volumes
(spinning reserve) thereby leading to an increase in “dispatching” costs, despite the
surplus energy of the system (as illustrated in the graph below)31.
31 Citi Research, Energy Darwinism II, Energy Storage, Game changer for Utilities, Tech and Commodities, 25 September 2014, p. 11.
30
Residual negative load in terms of time (with “must run” and inflexible technologies having covered 100% of
demand without the production of coal-and gas-fired plants)
Source: Citi Research estimates
(d) Favouring the emergence of smart grids
Introduction
A “smart grid” may be defined as an electrical network which, by virtue of new
IT technologies, effectively integrates and manages the behaviour and actions
of all of the connected users, with the aim of improving the effectiveness,
reliability, profitability and sustainability of the distribution system. In practice,
the smart grid permits a larger interaction between users connected to the
distribution network and the operator of the distribution system, so as to:
facilitate the integration into the distribution network of new types of
users, in particular, units of non-programmable renewable energy
production and the consumption units, such as heat pumps and hybrid
electrical vehicles;
improve the functioning of the distribution network, by automating it
further, allowing an improvement in the detection of anomalies and
favouring the self-repair of the network, thereby reducing losses and
optimising the management of electrical flows;
ensuring the security, continuity and quality of electrical supply, by
preventing any risk of untimely isolation and/or the sudden the
activation of the allocation of production, allowing the network to
provide auxiliary services (regulation of voltage and/or of frequency,
reserves, etc.); and
promoting more direct consumers engagement at the level of use and
in the management of their consumption (management of demand).
In order to function correctly, a smart grid must simultaneously be integrated
with communication technologies permitting control in real time and an
exchange of information and data to optimise the reliability of the system, the
use of its assets and security. Detection and measurement devices must be
updated or replaced by intelligent power electronics: sophisticated meters
equipped with microprocessors, electromagnetic measurements, tools for
pricing use in real time, that are capable of generating the flow of data and
information in a bidirectional fashion and of providing the required services in a
short period of time.
The smart grid is completed by systems for forecasting demand for load and
production of non-programmable renewable energies, and through energy
storage devices. The objective is to manage the energy flow in an optimal
fashion, so as to avoid congestion of the grid and unnecessary investment in
new distribution systems.
By way of illustration of current investments in this domain, the public and
private expenditure within the context of the American Recovery and
Reinvestment Act or “ARRA” of the United States (2009) amounted, in March
2013, to US$ 6.3 billion for the 99 investment subsidies for smart grids (Smart
31
Grid Investment Grants or “SGIG”). Between 2009 and 2015, the US
Department of Energy or “DOE” and actors in the electricity sector will jointly
have invested more than US$ 7.9 billion in SGIG projects, involving more than
200 producers and electricity suppliers and other entities, with the aim of
modernising the electricity grid, improving operability and collecting an
unprecedented volume of data on operations, advantages and the positive
impact of smart grids32.
32 U.S. Department of Energy, 2014 Smart Grid System Report to Congress, August 2014, p. 3.
32
Principal applications and size of the market
Stabilisation of conventional and intermittent energy production
Stabilising electricity production in order to ensure an optimal
exploitation of conventional and intermittent energy production
resources is the principal challenge to grid management and a reduction
of the associated costs. The storage solutions may contribute to the
hourly smoothing of electricity production: charging electrical power at
times of heavy production and low demand, storing and discharging it at
times of low production and strong demand. The hourly smoothing of
electrical production contributes to the stability of the electrical network
by reducing the divergence between the peaks and troughs of residual
demand.
In order to meet peak demand, electricity producers and suppliers may
either implement excess production capacities or purchase electricity
from electricity producers and suppliers specialising in peak production.
Energy storage should permit cost savings by allowing electricity
producers and suppliers to avoid purchasing electricity at peak prices and
buying (or producing) it when it is cheaper, regardless of the moment
when it will be used. The recourse to energy storage in order to smooth
load peaks, i.e. smoothing hourly production, represents a potential
market estimated in a range of US$ 10-25 billion per year by 202533.
Devices that permit the storage of excess electricity, derived from
renewable energy sources during periods of strong production and weak
demand (e.g. at night) and returned to the grid when demand increases
(around midday). This avoids a slowdown in conventional plants at night,
and in this way permits a reduction in production costs and CO2 emissions.
Given the large quantities of power and energy necessary for regulating
conventional means of production, the use of storage possibilities within
the context of this application is relevant for storage on a large scale. The
Boston Consulting Group estimates the size of this market at US$ 50
billion by 203034.
Postponement of transport and distribution investments
Considerable investments in transport and distribution infrastructure will
be necessary in the forthcoming years. In its global energy prospects, the
International Energy Agency forecasts that total investments in transport
and distribution infrastructure will amount to US$ 6.817 billion during the
period 2014-203535.
The postponement over time of transport and distribution infrastructure
is possible by using storage resources to absorb power exceeding the
capacity of a T&D line and returning it at a subsequent point, when the
33 McKinsey Global Institute, Disruptive technologies: Advances that will transform life, business, and the global economy, May 2013, p. 101. 34 The Boston Consulting Group, Revisiting Energy Storage, There is a Business Case, February 2011, p. 13.
35 The International Energy Agency World Energy Investment Outlook (2014), p. 106.
33
available T&D capacities permit. The upgrading of T&D resources
generally translates into high fixed costs, while relatively limited storage
resources allow a delay in (or even avoidance of) the investments which
would otherwise be necessary.
According to an analysis by McKinsey, energy storage is only financially
viable for this purpose in a small number of cases, e.g. when transmission
lines can no longer be rapidly upgraded due to their length, or when the
authorisation rules are strict due to environmental constraints, or in urban
centres, where the upgrading of distribution infrastructure is
exceptionally onerous. By 2030, 15% of electricity transport and
distribution infrastructure will be so expensive that it will be necessary to
invest in storage systems and to defer the other investments.
The potential market for use of energy storage in T&D infrastructure
could represent by 2030 a total of around US$ 10 billion per year36 of the
planned US$ 295 billion of investments.
Lastly, it should be mentioned that Terna, the leading electricity transport
grid operator in Europe37 and the international benchmark for the entire
deregulated energy market, published an interesting economic analysis in
2012 on distributed energy storage systems in its “Piano di Sviluppo della
rete elettrica di trasmissione nazionale” Development plan for the
national electrical transmission grid. Terna calculated that the
implementation of energy storage solutions would translate into savings
of around € 400,000/MW without supplementary investment for
upgrading T&D lines. By implementing the 240MW forcing globally in the
2012 Grid Development Plan and considering a useful operating life for
storage of 15 years, Terna estimates the net savings at around € 45 million
per year. The methodology used by Terna38 to evaluate distributed energy
storage systems is based on a cost-benefit comparison. The costs
considered in the analysis are CAPEX and the OPEX, the benefits being39:
uncapped energy, improvement in security, reduction in the reserve for
offsetting delivery deficits for renewable energy plants, the regulation of
the primary frequency and the postponement of investments.
Evolution of the business, results, and financial situation of the Group
4.1. Group Activity and principal factors affecting the performance of the Group in 2015
Created in 2005 in Torino as a spin-off of the Politecnico, the Group designs, develops and markets energy
storage solutions, mainly in hybrid configuration and therefore complex systems made up by a mix of
renewables, power and control electronics, traditional storage and hardware technologies, and hydrogen
technologies. Such systems are adapted to end users and infrastructures for which an uninterrupted
electricity supply or energy storage capacity is critical. The solutions proposed by the Group are aimed both
36 McKinsey Global Institute, Disruptive technologies: Advances that will transform life, business, and the global economy, May 2013, p. 102.
37 Via “Terna Rete Italia”, Terna manages the national grid, comprising more than 63,500 km of high voltage lines. 38 See: “Évaluations techniques/économiques” Technical/economic assessments in the annex to the “Plan de développement du réseau 2012” 2012 grid
development plan published by Terna S.p.A.
39 See: “Évaluations techniques/économiques” Technical/economic assessments in the annex to the “Plan de développement du réseau 2012” 2012 grid
development plan published by Terna S.p.A.
34
at end users. communities, and to actors in the electricity market, notably producers and suppliers of
electricity and grid operators which transport and distribute electricity.
The Group leases a production site, as well as offices and a research and development laboratory in Italy. In
France, the Company’s registered office is sublet, as “entrepreneur in residence”, in the offices of one of its
principal shareholders, the investment fund 360 Capital Partners.
Since its creation in 2005, the Group has invested heavily in order to pursue its research and development
activities and has been supported and financed by its shareholders for more than seven years.
A detailed analysis of the activity of the Company and the Group during the financial year ended on 31
December 2015 is included in Chapter 3 of this Management Report.
The principal factors affecting the performance of the Group in 2015 period were:
(i) The new product and market strategy properly executed after the IPO in April 2015, aimed at
finding new opportunities in the grid support and off-grid energy market, rather than the
telecommunications infrastructure sector. In particular, the transition from ElectroTM and
ElectroSelfTM to Hybrid Solutions and turn-key systems, which, due to scientific development and
industrialisation deadlines, translated into a reduction in sales of ElectroTM and ElectroSelfTM
before Hybrid Solutions could take over converting the backlog and the pipeline already in place
for 2016.
(ii) A new completely “unsibsidized” business model, resulting in a significant reduction of the 2015
revenues and cash flow of the Group that, during 2013 and 2014 financial years, materially derived
from public sector subsidies granted within the context of the participation of the Group in projects
financed or co-financed by public sector entities. The pursuing from 2015 of a completely
“unsibsidized” business model, entailed a dramatic reduction in 2015 of the proceeds from such
subsidized activities and related other income.
(iii) Investments in (1) a new production site, fully renovated, modernized and adapted to the
production of the new HyESSTM company target product, with a monthly capacity of 2MW at
regime, (2) the closure of the Aosta and Moncalieri (TO) original manufacturing sites, and (3) a new
representative Milan office, which, all together, required financial capacity equal to approx. €
1.2mio, ending the Property, plant and Equipment Asset at € 748,115 for the financial year 2015
while it was € 76,241 for the financial year 2014.
(iv) Investments and commitment of financial resources for research and development, namely the
purchase of goods and technical services, qualified personnel both from inside and outside the
company, aimed at developing new product HyESSTM, which required financial resources equal to
approx. €1.5mio ending the Intangible Asset at € 820,243 for the financial year 2015 while it was €
145,269 for the financial year 2014.
(v) Strengthening and enhancement of the human resources structure, resulting in financial
investments in personnel costs and for research selection of highly qualified specialists, both in
purely technical areas for both the operational management, administrative and Corporate
Governance; process started in the second half of the year and still ongoing, absorbing financial
capacity for € 1.3mio.
(vi) An additional increase of the the Company’s share capital, by the issuance of 701,500 new shares at
a par value of 0.2 Euro per share, and a consequent increase in share capital ending at a nominal
value of Euro 1,576,361, and an issue premium of Euro 4,770,200, which further strengthened the
financial position of the Group, ensuring at the perimeter the future cash flows necessary for the
development of the product and market strategies.
(vii) A strategic acquisition carried out in the last quarter of the year and finalized on 1 January 2016. In
particular, during the last two months of December, the management began dealing with Elvi
35
Elettronica Vitali S.p.A., main owner of the newly spinned off Elvi Energy, acquired with
effectiveness on and from 1 January 2016, which at year-end 2015 required the immobilization of
financial resources around € 2,4 million, which at the start of 2016 has been utilized for the Elvi
Energy acquisition closing, ending the Other Current Assets at € 3,572,946 for the financial year
2015 while it was € 1,274,926 for the financial year 2014.
(viii) A renewed Group strategy to secure framework and long-term agreements in the grid application
sectors, for which the sales cycle, including a preparation phase and an execution phase, may
extend over several months. In fact, there are significant periods and divergences between the
closing of these agreements, their recording under revenues and cash flow entries, as a function of
several parameters (realisation deadlines for the Group of the foreseen services, rules of recording
in revenues of the amounts due by way of these agreements, payment procedures and schedule).
In other terms, in 2015 and in particularly after the the IPO which gave to the Group the resources to
implement in concrete its business strategy, the Group decided to invest heavily in securing an excellent
team, an appropriate manufacturing capacity, a strategic acquisition to verticalize the value chain and the
internal manufacturing process, and solid commercial relationships to scale up growth in 2016. In this
respect, revenues generated in 2015 are mainly related to services and supply to old customers in the
telecommunication sector, and supply to system integrators, and the effects of the 2015 investments and
strategy execution will be visible from early 2016.
4.2. Presentation of the principal items of the consolidated income statement
The Company is required to publish yearly consolidated financial statements and annual consolidated
financial statements pursuant to IFRS standards. The first full-year consolidated financial statements have
been those of 31 December 2015.
The Company was initially incorporated on 26 December 2014. In the context of the admission of the shares
of the Company to trading in Euronext Paris, the shareholders of EPS Manufacturing contributed the
entirety of the Shares of EPS Manufacturing that they hold. Since this date, the Company is now the parent
company of the Group and now the main agreements are signed by the Company (such like the Framework
Agreement with Enel, the partnership with Bryanston Resources, etc.). Furthermore, after 2015-year end
closure, two new operative entities, Elvi Energy and MCM (please see Section 5 of this management
report), have been added to the Company’s consolidation perimeter.
4.2.1. Revenues
Revenues derive from sales of goods and the provision of services.
Financial year 2015 has been a year of investments to secure a rapid but sustainable growth on and
from 2016. As a result, the majority of the sales of goods generated in 2015 and accounted according
to the Italian GAAP, namely €814,490.47, correspond to sales and services rendered under the
Technology Partnership Agreements signed at Group level, with two Italian market players in the
system integration for the energy, telecommunication and in data center sector, namely Advance
Devices S.p.A. (“AD”) and MGH Systems Ltd, UK (“MGH”) (please see Section “Revenues, other
revenues and proceeds” below).
4.2.2. Other Revenues
Other revenues notably correspond to public sector subsidies, reimbursements by clients of amounts
advanced by the Group within the context of agreements for provision of services.
36
With regard to public sector subsidies, these are registered under revenues, since when they are
effectively received, they are registered under cash flow deriving from operating activities. Recording
under revenues is linked to the confirmation of a reasonable assurance that the Group will comply
with the conditions associated with the subsidy and that this will effectively be received. Their
recording under revenues is made for the financial year during which the costs corresponding to the
subsidised projects were recorded. The effective payment of the subsidy and hence the
corresponding impact on cash flow may be staggered over time due to the deadlines for the public
sector institution which has granted the subsidy to verify that the conditions associated with the
subsidy have been fulfilled effectively and the payment deadlines appropriate to public sector entities
have been met.
The following table indicates, for the two financial years considered, the public sector subsidies
granted, the amounts recorded under revenues and the amounts recorded under the cash position.
Financial year 2015 shows a significant reduction due to a clear “unsibsidized business model”
prosecuted by the Company strategy.
Projects
Amounts recorded under cash flow
Financial years ended on 31 December
2015 2014 2015 2014
FITUP - 57,272 59,689 (4,052)*
Flumaback 262,433 - - -
Val d’Aosta Region (VDA)
- 494,804 454,925 -
HELTHCODE - - 100,788 -
GBMP - 83,120 62,484 27,108
HYSOLWIND - 100,034 99,685 -
EPSTACK - - - -
MEMESEAL-FC - - - -
HYSYPOWER - - - -
HYFCAIR - - - (63,731)*
Other 3,384 50,728 3,682 40,675
Total 265,817 785,958 781,253 0
*Government grants/subsidies, when they are actually received are recorded as cash flow, including advance payments on grants. However, it
may happen that the amount of costs spent under the grant be less than the amount of the advance that had been granted by the public entity.
Therefore, the Group must repay the difference between these two amounts. Therefore, negative amounts are presented in the table showing
subsidies.
4.2.3. Principal expenses
37
(i) Raw materials, consumables and finished products
Purchases principally consist of purchases of raw materials and semi-finished products, such
as switchboards and materials purchased for the MGH and AD orders, components of fuel
cells, which are then assembled and integrated into the Group’s systems, of electrolytic cell
and of the electronic components, as well as the fuel cells which the Group buys in pre-
assembled form before integrating them into its systems. This item also includes the change
in inventories of raw materials and of finished products.
(ii) Staff costs
Staff costs correspond to the set of fixed and variable items of remuneration paid to
employees, as well T&E costs, social security contributions and charges linked to pension
and related commitments.
The majority of Group’s employees are located in Italy, with two thirds of them dedicated to
research and development. The Group accounts a representative office in USA, San
Francisco California.
This item also includes few redundancy and early retirement incentives occurred in the
financial year 2015; nevertheless, during second semester 2015, the Group has overtaken a
significant new hiring process aimed to achieve a top-level and functionally adequate
organizational structure, and finalized to make sustainable targeted growth programs, given
the compelling pipeline and company strategic objectives.
(iii) Allocations to amortisation of tangible and intangible fixed assets
The allocations to amortisation correspond principally to the amortisation of technical
installations, equipment and electronic material and to items of intellectual property of the
Group.
In 2015, the Company invested more than € 550,000 in the implementation of a new
operative and production site, nearly located in Turin, Rivoli (Italy), making changes and
upgrades needed for the development and production of new products HyESSTM. In the
same financial year there were massive investments in research and development, also
focused to the implementation of HyESSTM product.
(iv) Depreciation/Appreciation of assets
The depreciation (or as occurred in 2015) of assets corresponds principally to the loss/gain of
value which may result from the value tests carried out on assets constituted by the
equipment, inventories, intangible assets or debts held by the Group.
(v) Other operating expenses
This item aggregates all of the other charges linked to the operation, for which the detail
and evolution are provided in paragraph 4.3.1 (v) of this Management Report, as well as in
Note 4.6 to the Consolidated Financial Statements of the Group.
(vi) Non recurring income and expenses
In 2015, this item also included the significant non-recurrent expenses for IPO that,
according to IFRS accounting principle, should be taken into expenses during the same
financial year. Out of a total amount of IPO costs for € 2,653K, € 1,595k has been
38
consequently booked at cost in 2015, while remaining € 1,058k together with around € 204
expenditure related to the increase of capital, have been suspended at Equity.
Furthermore, remaining non recurrent expenses for € 1,597,658 are linked to several
notaries, legal, administrative, media/marketing/communication, rebranding, financial
market research advisors and brokers, R&D non-recurring expenses in 2015 not to be
capitalised occurred during 2015 and are strictly due to the extraordinary needs for new
business and technology positioning strategy.
Non-recurring income is mainly related to a final settlement agreement with a creditor, a
dispute started in 2014 and closed during the 2015.
(vii) Non-deductible expenses
In accordance with Articles 223 (iv) and 223 (v) of the Tax Code, the accounts for the past year
do not support expenditures called "luxuries" which are not deductible for income tax
purposes.
(viii) Net Financial result
The net financial result essentially consists of the costs for a strategic plan made up of
reorganization, reshaping of the HR, a new entirely Operation environment, new key
product development strategy who focused the entire organization to it, a Stock Option and
Warrant plan and nevertheless, expenses for the admission of the Group to a listed capital
market, necessary and vital for the same business continuity.
(ix) Payment Timeline
Pursuant to Article L.441-6-1 of the Commercial Code, below the maturity breakdown of due
balances at the end of 2015 of the Company's trade payables:
(x) Income tax
In 2013, EPS Manufacturing had no taxable income, by way either of corporation tax or of
IRAP, due to the low volume of revenues compared to the amount of operating expenses. In
2014, EPS Manufacturing generated a taxable profit subject both to corporation tax and to
IRAP. The net profit subject to corporation tax could be offset against tax debts which could
be carried forward. Conversely, this possibility did not exist with regard to IRAP. In 2012, the
Group paid tax in Italy by way of the activities of its Singaporean subsidiary.
4.3. Comparison of the financial years ended 31 December 2014 and 2015
The following table presents the principal items of the consolidated income statement for the financial
years ended 31 December 2014 and 2015.
Due Date
31
December
2015
Due date>
60 days
Due date
from 30 to
60 days
Due date
from 1 to
30 days
Due date as
of 31
December
Due date
from 0 to
30 days
Due date
from 31
to 60 days
Due date >
60 days
Total
Total
suppliers
282.142,05 611.608,28 524.853,47 376.665,50 39.003,77 47.315,05 230.298,99
2.111.887,11
39
CONSOLIDATED INCOME STATEMENT (in €)
NOTES 31/12/2015 31/12/2014
Revenues from sales (4,1) 355,266 761,774
Margin from technology partnership agreements
(4,1) 26,255 0
Other income (4,2) 266,495 807,030
Cost of goods sold (4,3) (135,357) (379,204)
GROSS MARGIN FROM SALES 512,659 1,189,600
Other costs for product development (4,4) (595,890)
Personnel costs (4,5) (1,720,150) (1,103,157)
Other operating expenses (4,6)) (1,348,270) (1,553,800)
EBITDA (4,7) (3,151,651) (1,467,357)
Stock option and warrant plans (4,8) (4,646,452) 0
Amortization and depreciation (4,9) (86,259) (54,269)
Impairment and write down (4,10) 80,369 (335,214)
Non recurring income and expenses (4,11) (2,850,353) 1,657,035
EBIT (4,12) (10,654,346) (199,805)
Net financial income and expenses (4,13) (7,984) (9,446)
Income taxes (4,14) 64,806 (84,738)
NET INCOME (LOSS) (10,597,524) (293,989)
Weighted average number of ordinary shares 5,487,201 1,182,320
BASIC ERANINGS PER SHARE (1.93) (0.25)
4.3.1. Revenues, other revenues and procedures
Financial year 2015 has been a year of investments to secure a rapid but sustainable growth on and
from 2016. As a result, the majority of the sales of goods generated in 2015, of a nominal gross
amount of €814.490,47, correspond to sales and services rendered under the Technology Partnership
Agreements signed at Group level, with two Italian market players in the system integration for the
energy, telecommunication and in data centre sector, namely Advance Devices S.p.A. (“AD”) and
MGH Systems Ltd, UK (“MGH”).
H
owever, the acquisition of Elvi Energy and MCM has been completed in 2016 and the vertical
integration of the manufacturing process still in course between Rivoli (Turin, Italy), new site of EPS
Italy launched in December 2015, and Delebio (Sondio, Italy), historical plant of Elvi Energy. As a
Sales of goods (Italian GAAP)
(in € and in %) 31/12/2015 Change in % 31/12/2014
Total Sales 1.169.756 34.9% 761.774
40
result, all purchase orders generated towards the the EPS Group by MGH and AD have been entirely
outsourced.
For that reason, to ensure a clearer representation of such outsourcing, revenues have not been
accounted at the gross nominal value of €814,490.47 but rather at their net margin value of €26,255
in accordance with IAS18.
Revenues and Net Margin / IAS 18 (in € and in %)
NOTES 31/12/2015 Change in % 31/12/2014
Revenues from sales (4,1) 355,266 -107% 761,774
Margin from technology partnership agreements
(4,1) 26,255 n.s. 0
Other income (4,2) 266,495 -203% 807,030
In this respect, the acquisition of Elvi Energy and MCM (see Section 5), coupled with the completion
in December 2015 of the new manufacturing plant, will play a pivotal role as thanks to that vertical
integration, the Company can be able to manufacture internally any Smart Energy Integrated
Technology securing target margins and therefore enabling the accounting at the gross nominal
value of the revenues generated in accordance with IAS18.
One of such Technology Partnership Agreements has been executed with AD, a leading technology
company that designs and manufactures electronic devices such as energy conversion systems,
analysing and measuring systems, automatic monitoring devices and energy saving instruments. The
partner, who has always invested also in research and development for renewable energy systems
such as fuel cells, wind power plants, solar plant and cogeneration systems in combustion engine, is
specialized, inter alia, in tele-monitoring systems, distribution and remote control designed and
manufactured internally, composed by one or more of the peripheral monitoring systems and by
supervision software. AD is particularly active in the telecommunications world (Telecom Italia,
Wind) and in the energy sector (Enel), having installed systems in Latin America (Chile and Bolivia) as
well as in Italy. AD constitutes also one of the Italian excellences qualified by Enel and Symbola
Fondazione in a report presented at COP 21.
The Group signed another strategic technology partnership with MGH. The agreement appointed
Electro Power Systems as exclusive technology provider for the MGH Group, with particular focus to
supplying goods, services and developing worldwide technology infrastructure devoted to any data
centre and infrastructure developed by MGH. More particularly, with the new platform “HyESS Data”
already announced with the publication of the Half-Year Financial Report as of 30 June 2015, EPS will
be able to integrate any storage technology, including UPS and diesel generators, but also any Smart
Energy Integrated Technology, i.e. technology infrastructures devoted to mission critical
applications, building energy and/or safety management systems.
Remaining revenues are linked to the provision of services deriving mainly from maintenance and
supply services included in the agreements formalised with clients of the Group’s for the sale of
technology assets to major telecom providers, in Italy and abroad.
Total revenues from operations (including technology agreements margin) decreased by € 380,253 or
50%, from € 761,774 for the financial year 2014 to € 381,521 for the financial year 2015.
41
Sales of assets moved down by € 455,512 or 94%, from € 486,389 for the financial year 2014 to €
30,877 for the financial year 2015.
Provision of services slightly increased by € 75,259 or 27%, rising from € 275,385 during the financial
year ended on 31 December 2014 to € 350,644 during the financial year ended on 31 December 2015.
The following table presents the geographical allocation of sales by destination:
Geographical allocation (in € and in %)
Financial year ended on 31 December
2015
Financial year ended on 31 December
2014
Italy 378,817 99.3% 619,018 81.2%
United States and Canada 2,704 0.7% 135,302 17.8%
Rest of the World 0 0% 6,801 0.9%
Europe 0 0% 653 0.1%
Total 381,521 100% 761,774 100.0%
(x) Other Income
Other revenues decreased by € 540,535 or 67% due to the strategical decision of being
“unsubsidized”, from € 807,030 during the financial year 2014 to € 266,495 during the
financial year 2015. The following table presents the detail of this item for the two financial
years:
Other Income (in € and in %)
Financial year ended on 31 December
2015
Change
in %
Financial year ended on 31 December
2014
Public sector subsidies 265,817 66% 785,958
Miscellaneous 678 97% 21,072
Total 266,495 67% 807.030
42
(xi) Costs of goods sold
Cost of goods sold, including purchases of raw materials, consumables and finished
products, including the changes in inventories increased by € 544,388, more than 100%,
from € 379,204 for the financial year 2014 to € 923,592 for the financial year 2015 according
to Italian GAAP.
Purchase of raw materials, consumables, finished products (IT GAAP) (in € and %)
Financial year ended on 31 December
2015
Change in %
Financial year ended on
31 December 2014
Raw materials, consumables and finished
products (1,078,547) 75.6% (614,379)
Change in inventories (consumption and
obsolescence) 154,955 (34.1)% 235,175
Total (923,592) 62.2% (379,204)
Raw material, consumable and finished products increased by € 464,168, more than 75%,
from € 614,379 for the financial year 2014 to € 1,078,547 for the financial year 2015. Changes
in inventories has a positive impact of € 154,955 during the financial year 2015 while it was
still positive but of € 235,175 during the financial year 2014.
The main reason of this change is due to the fact that the company has developed in the
second half of the year, the mentioned partnership agreements with MGH and AD in order
to participate both in the initial phase of purchase of goods and services, both for the
development and processing of raw materials and electronic components used by our
customers in complex development project like da centers and facilities and infrastructures.
As done when commenting the revenue section, to ensure a clearer representation of such
outsourcing, costs of goods sold have not been accounted at the gross nominal value of
€923,592 but rather at their net margin value of €135,357 in accordance with IAS18.
Cost of goods sold (IFRS GAAP) (in € and in %)
Financial year ended on
31 December 2015
Change
in %
Financial year ended on
31 December 2014
Raw materials and components
(290,312) 53%
(614,379)
Change in inventories 154,955 34%
235,175
TOTAL COST OF GOOD SOLD
(135,357) 64%
(379,204)
(xii) Other costs for product development
In order to be clear and comprehensive in reporting corporate events that characterized
2015, it was decided to introduce a new item of costs reclassification that the company
incurred during the year for research and development of new products that in the Company
strategy will be sold in future years. Obviously this is that part of the costs that, for their
nature have not been recognized to be capitalized in accordance with IFRS. It is therefore
costs of goods and services whose economic and financial effectiveness has been limited
43
during the year and that is prudentially have been booked at cost during the financial year
2015 as from an economic and finance perspective they won’t have impact in subsequent
years.
Other costs for product development, consisting in raw materials, components and
consumables goods, totalized € 595,890 for the financial year 2015 while null has been
reported in the financial year 2014.
(xiii) Personnel costs
The following table details staff costs and their evolution over the two relevant financial
years:
Personnel costs (in € and in %)
Financial year ended on 31 December
2015
Change in %
Financial year ended on
31 December 2014
Wages and salaries (1,310,102) 56% (838,129)
Social security contributions (305,960) 47% (208,576)
Benefits subsequent to employment (67,230) 19% (56,452)
Other costs (36,858) 100% 0
Total (1,720,150) 56% (1,103,157)
Total personnel costs increased by € 616,994, more than 56%, from € 1,103,157 for the
financial year 2014 to € 1,720,150 for the financial year 2015.
From 2014 onwards, reimbursements of travel and other costs incurred by employees, which
were recorded under “Other costs”, are recorded under the item “Wages and salaries”.
Wages and Salaries increased by € 471,973, more than 56%, from € 838,129 for the financial
year 2014 to € 1,310,102 for the financial year 2015. Major increase is of course due to the
increase of the number of personnel that was 29 in 2014 while results 42 in 2015, resulting 13
more than the number at year end 2014.
As a consequence of the higher number of employees, Social security contribution costs
increased by € 97,384, more than 47%, from € 208,576 for the financial year 2014 to €
305,960 for the financial year 2015.
Same trend for Benefits subsequent to employment, that increased by € 10,778, more than
19%, from € 56,452 for the financial year 2014 to € 67,230 for the financial year 2015.
Within the item Other costs, € 30,750k of costs for personnel reorganization and redundancy
incentives are included, as well as € 6,108 of extraordinary costs related to the newly hired
personnel of EPS INC (US).
(xiv) Other operating expenses
The other operating expenses represented € 1,553,800 during the financial year 2014 and €
1,348,271 during the financial year 2015, reducing by 205,529 or 13%.
The following table details the operating expenses over the two relevant financial years,
Other operating expenses (in €)
Financial year ended on 31 December
2015
Change in %
Financial year ended on
31 December 2014
Consultants (legal and other) (423,340) (6.7)% (453,918)
44
Miscellaneous (289,919) (23,1)% (369,114)
Remuneration of the board of directors (147,703) (56.8)% (341,611)
Installation costs (210,648) 58.3% (133,075)
Accounting services (58,182) (39,1)% (95,522)
Rents (73,717) 18.2% (90,082)
Auditors (60,136) 147.2% (24,330)
Insurance (58,990) 200,7% (19,615)
Banking costs (20,091) 67.1% (12,021)
Maintenance costs (6,750) (40,1)% (11,263)
Taxes and duties (4,796) (47,6)% (3,249)
Total (1,348,271) 13.2% (1,553,800)
The reduction of total operating expenses reflects the continuation of the savings plan
implemented by EPS Group overall its operation and support structure. Since 2015 has been
a significant year concerning research and development effort, both for product
development, for brand new manufacturing plant and both for its staff and supportive
function with new hired highly qualified staff recruiting and hiring, the item Other operating
expenses has been focused only on recurring costs and expenses that will most probably
occur in coming years. A specific line in the P&L has been added to allocate properly all costs
and expenses related to the extraordinary events occurred during 2015.
Overall the single exposure category included in the item Other operating expenses, is
below or aligned to what reported in year 2014. Board of Directors compensation reduced
comparing 2014 by € 193,908 because last year, an exceptional remuneration attributed to
the directors for the role which they played in the Financial and Industrial Restructuring was
assigned. The compensation of the Board member CEO and the CO-CEO, it is not included
in Other Operating Expenses, but it has been reclassified in the item Personnel costs,
accordingly to the business development, operative role played by both Directors.
(xv) Stock Option and Warrant plan
The item refers to the accrual made against equity, in accordance with IFRS2, for the two
stock option and warrant plans described in the previous paragraph “Stock option and
warrant plans”.
In order to compare the results, have been selected two valuation models: Black & Scholes
and Cos, Ross & Rubinstein. The following tables provide details of the main assumptions
and a summary of the average weighted unitary and total valuation for the two outstanding
options / warrants plans.
However, it has to be outlined that:
- the first allocation resulted in No. 709.948 options and warrants vested on 6 March 2016,
but the main assignees (Chairman, deputy-Chairman, Chief Executive Officer and a board
member) confirmed at the Board of Directors held on 8 April 2016 to approve the FY2015
accounts that they will be locked-up until 23 September 2016.
- all the other options and warrants are subject to a 4-year vesting period with 18-month
cliff-vesting from the relevant allocation.
45
Stock option/Warrant number and conditions for each allocation:
1. Board Resolution date 6 March 2015 exercise price 0.20€ allocated nr. 349,058
2. Board Resolution date 21 April 2015 exercise price 5.11€ allocated nr. 331,965
3. Board Resolution date 26 November 2015 exercise price 5.81€ allocated nr. 166,340
46
Key Assumptions 2015-1 2015-2/1 2015-2/2
Evaluation date March 6, 2015 April 21, 2015 November 26, 2015
Duration 3.5 years 5.9 years 5,9 years
Risk-free interest rate -0,14% 0,00% 0.00%
Underlying assets unitary value
Euro 7.30 Euro 7.30 Euro 6.90
Expected dividends 0,00 0,00 0.00
Expected volatility 75% 40% 40%
2015-1 NUMBER
WEIGHTED AVERAGE
UNIT VALUATION
EXERCISE PRICE
Board Members
Options / Warrants 638.952 7,10 0,20
Executive Committee Options 29.582 7,10 0,20
Other Warrants 41.414 7,10 0,20
TOTAL 709.948 5.040.631
2015-2/1 NUMBER
WEIGHTED AVERAGE
UNIT VALUATION
EXERCISE PRICE
Board Members
Options / Warrants 308,959 3,51 5,11
Executive Committee
Options / Warrants 49,302 3,51 5,11
Employee Options 52,587 3,51 5,11
TOTAL 410,848 1,442,076
47
2015-2/2 NUMBER
WEIGHTED AVERAGE
UNIT VALUATION
EXERCISE PRICE
Board Members
Options / Warrants 45.236 3,09 5,81
Executive Committee
Options / Warrants 126.104 3,09 5,81
Employee Options 0 3,09 5,81
TOTAL 171.340 529.441
In terms of assessment of value linked to the assignment of both the stock option plans as
per December 2015, the cost included in P&L item is € 4,646,452: at year end 2014, there
were no stock option plan allocate, so there is comparable with 2015 figures.
(xvi) Allocations to amortisation and depreciation
Amortization and depreciation (in € and in %)
2015 Change in % 2014
Amortization (47,363) 137% (20,020)
Depreciation (38,896) 14% (34,249)
TOTAL (86,259) 59% (54,269)
Amortisation and depreciation increased by € 31,990, or 59%, from € 54,269 for the
financial year 2014 to € 80,369 for the financial year 2015. The increase in allocations to
amortisation and depreciation for the financial year 2015 is explained by the amount of
capitalised expenses inherent to the development of the Rivoli production site, machinenry
and furnishings; total investment is equal to EUR 713,740. The development took place
during last quarter 2015, and the impact on P&L of deprecisation, is taken proquota and
based on a 6 years renting contract.
(xvii) Impairment and write down
Impairment and write down is positive by € 86,259 for the financial year 2015 in accordance
with an improved outlook for future production and business continuity. In 2014, before the
IPO process, raw materials, consumables and work-in-progress products valuation suffered
a negative outlook and uncertainty for the upcoming year.
48
(xviii) Non recurring and income expenses
NON RECURRING INCOME AND EXPENSES (in €)
2015 2014
Income related to the 2013-2014 restructuring plan 1,693,105
Penalties 177,565
Expenses related to the 2013-2014 restructuring plan (213,635)
IPO costs (1,595,572)
Facilities / Technical & extraordinary expenses for new manuf. plant
(487,918)
Non recurring Legal Accounting & Certification (546,231)
Non recurring expenses for R&D activities (212,637)
Non recurring Travel, Communication and Road show expenses
(350,872)
Non recurring settlement 342,887
TOTAL NON RECURRING INCOME AND EXPENSES (2,850,343) 1,657,035
Non recurring and income expenses are negative at year end 2015 for € 2,850,353 while at
same period 2014 reported a gain of € 1,657,035, basically due to proceeds from the debt
waiver granted by suppliers as part of the Financial and Industrial Restructuring.
Within the item, are include all costs that are considered extraordinary and related to
specific restructuring, rebranding, reorganizing Company phases.
Total IPO costs amount to € 2,653,927 and in accordance with IAS 32 have been splitted in
IPO direct costs (€ 1,058,355) related to the capital increase and accounted for in deduction
of Equity and IPO indirect costs (Euro 1,595,573) related to the listing process of existing
shares and included in “Non recurring income and expenses”.
Remaining non recurrent expenses for € 1,597,658 are linked to several notaries, legal,
administrative, media/marketing/communication, rebranding, financial market research
advisors and brokers, occurred during 2015 and are strictly due to the extraordinary needs
for new business and technology positioning strategy.
Non-recurring income and expenses amounting to €342,887 also include and are mainly
related to a final settlement agreement with a creditor for € 243,437 and related to a dispute
started in 2014.
(xix) 9.5.3 EBIT
EBIT loss amounted to € 10,654,346 for the financial year 2015 and to €199,805 for the
financial year 2014. Restated 2015 vs 2014 EBIT for the non-recurrent items detailed and the
impact of updated valuation of Stock Option and Warrant plans, the operating loss for the
financial year 2015 is € 3,157,541 basically incomparable with the loss of € 1,856,480 of
financial year 2004, when the public sector subsidies received were € 807,030 and there were
not relevant costs at P&L for product development.
49
EBIT RESTATED (in € and %)
2015 Change in % 2014
EBIT (10,654,346) (98.1)% (199,805)
Stock Option and Warrant Plans
4,646,452 n.s. 0
Non recurring income and expenses
2,850,353 158.1% (1,657,035)
EBIT Restated (3,157,541) (41.2) (1,856,840)
A significant portion of the revenues and cash flow of the Group derived, during 2013 and
2014 financial years, from public sector subsidies granted within the context of the
participation of the Group in projects financed or co-financed by public sector entities. The
pursuing from 2015 of a completely “unsubsidized business model”, entailed a dramatic
reduction in 2015 of the proceeds from such subsidized activities. In addition, the evaluation
of the highlighted restated result shown above should take into account that at the end of
2015 the Company had (i) a new manufacturing plant, while in 2014 a capacity of 2MW-
month for the size of the new technology was unachievable; (ii) an appropriate organization;
(iii) € 8.6 million cash and cash equivalents; and (iv) was listed on the French regulated
market of Euronext.
50
(xx) Net Financial Income
The item includes interests and charges on bank account, exchange rate difference on extra
CEE trades.
Net Financial Income and Expense (in € and %)
2015 Change
in % 2014
Financial income 72 (98.6)% 143
Financial expenses (7,625) (16.0)% (8,842)
Impairment on investment in other companies 0 0% 0
Net exchange differences (431) 273.3% (747)
TOTAL NET FINANCIAL INCOME AND EXPENSES (7,984) 18.3%
(9,446)
(xxi) Taxes
TAXES (in€ and %)
2015 Change in % 2014
Current taxes n.s.
IRES 0 n.s. 0
IRAP 0 n.s. (19,579)
Other income taxes 0 n.s. (789)
Deferred taxes n.s.
IRES 56,375 200% (56,375)
IRAP 7,995 200% (7,995)
TOTAL INCOME TAXES 64,370 231.6% (84,738)
IRES CUMULATED TAX LOSSES (in €)
2015 2014
Statutory before tax losses 0 0
Nondeductible costs 0 0
Other deductible costs 0 0
TAXABLE AMOUNT 0 0
IRES Tax Rate 27.50% 27.50%
CURRENT TAXES 0 -
Cumulated tax losses as at the beginning of the year (16,227,450) (16,282,369)
Cumulated tax losses as at the end of the year (19,463,444) (16,227,450)
IRES 27.5% 27.5%
Deferred tax asset 5,352,477 4,462,549
51
The income reported in 2015 is due to the reversal of deferred tax liabilities calculated at the end of
2014 on accrued IPO costs related to preparatory activities performed in 2014, on the share listing
project finalized in April 2015.
52
Post-closure events and business outlook 2016
5.1. Significant events since 31 December 2015
The following principal events have occurred since the end of the 2015 financial year:
The Electro Power Systems Group, through Electro Power Systems S.A., on January, 1 2016 has
acquired 100% of the company's capital Elvi Energy S.r.l. and 30% of its subsidiary MCM Energy
Lab S.r.l.
On 18 January 2016 the Group announced the acquisition of 70% of MCM, a leading R&D center of
excellence. The Company already held 30% of MCM, thanks to the acquisition of Elvi Energy,
launched on 14 December 2015 and completed on 29 December 29 2015 with effectiveness on and
from 1 January 2016. The transaction, closed for 315,000 euros of which around 76% will be
reinvested in the Company, has been the last step which led to the acquisition of 100% of Elvi
Energy and MCM, for a total of 2,756,922 euros of which 51% will be reinvested via a capital increase
reserved to Elvi and Elvi Energy management team.
On 29 February 2016 the Group announced the commissioning of a new Hybrid Power Plant,
located in Garowe (Somalia). This project will allow the reduction of diesel consumption by more
than 2,000 litres per day, powering approx. 100,000 people by renewables only. The Hybrid Power
Plant is mainly composed by solar panels, wind turbines, energy storage system, backup generator
and medium voltage distribution system and it is fully remotely controlled. The Hybrid Power Plant
serves a 3.5MW load, and is expected to be shortly further extended with 450kW of wind energy,
covering with renewables and storage more than 25% of the energy need of the city.
On 16 March 2016 the Group announced a 2MW Hybrid Power Plant, that will power a resort
completely off-grid located in the Maldives. This project will involve the engineering, supply and
installation of a renewable and storage turnkey solution that allows the reduction of diesel
consumption by approx. 275,000 litres per year, while cutting greenhouse gas emissions by around
165 CO2 tonnes per year. the power plant is mainly composed by solar panels, energy storage
system, advanced control system, power centre and is a real power plant fully remotely controlled.
5.2. Business Outlook
The global renewable energy sector is showing extraordinary resilience against a backdrop of slow
economic growth and depressed commodity prices. Despite oil averaging around $50 per barrel in 2015,
less than half the 2010-2014 five-year average, global investments in renewable energy set a new record at
$329bn, according to Bloomberg New Energy Finance.
China, India, Africa, Latin America and the US have replaced Europe as the drivers of growth in renewable
energy capacity. Indeed, non-OECD countries represent today 50% of the market versus 15% in 2004.
Growing appetite for energy, scope for unregulated business models and increasing capital availability
make emerging markets a conducive environment for disruptive innovation in energy supply.
EPS’ mission is to turn intermittent renewable energies into self-standing primary energy supply sources.
The mission is declined in three target markets: grid-side storage systems for grid support; distributed
smart storage for advanced prosumers; self-standing clean energy solutions for unelectrified or under-
electrified areas.
Self-standing clean energy solutions in emerging markets appear the key revenue growth driver for the
company in 2016, boosted by the rapidly decreasing costs of renewable generation, advances in power
conversion and management technology (where EPS is a technology leader) and burgeoning demand for
53
alternatives to costly and unreliable diesel as default fuel for electricity generation. Also in grid support
applications, emerging markets are set to contest the leadership of advanced economies, given the strain
induced by intermittent power flows on underinvested and historically unreliable infrastructure.
The credibility established with fully-commercial hybrid energy solutions already in operation in Sub-
Saharan Africa and South Asia make EPS a market leader, with a growing pipeline of projects across South
America, Africa and South-East Asia, where the Group positions as turnkey supplier for utilities, final clients
and private equity investors.
Its unique hydrogen-based storage technology for capacity-oriented applications adds to the Group a
further competitive advantage.
In parallel, the Group is consolidating its recognition as technology leader for storage-based grid support
solutions in advanced economies. Building on the outstanding performance of the solutions deployed in the
Italian transmission grid, the Group has now expanded its scope to the US, UK and Germany, where
burgeoning activity is expected over the next 12-24 months.
Finally, the progressive shift of electricity tariff structures towards capacity-driven, as opposed to energy-
driven, schemes promises to make peak shaving applications (where storage systems are used to reduce
peak usage of the grid) the basis of a strong business case for distributed smart storage. Thus representing
a further reservoir of growth later in 2017.
In 2016 EPS will strengthen its standing as technology front-runner, with the commercial debut of the
HyESS product line, incorporating hydrogen power-to-power storage as the disruptive capacity-oriented
enabling technology. Articulated in a containerized, modular concept, HyESS is designed to provide days of
autonomy to renewable-powered electricity systems, representing a paradigm shift in the perception of
renewable energies as self-standing sources. In parallel, the R&D effort in 2016 will focus on the expansion
and enhancement of the Group’s cutting-edge product line for power conversion and micro-grid control
and monitoring.
On the regulatory front, EPS shall relentlessly advocate for technology-neutral electricity market and tariff
designs, calling for a full opening to demand-side and storage technologies of energy, capacity and ancillary
services markets globally.
Key financial and non-financial performance indicators
6.1. Sales, other income, Capex and EBITDA
Group sales refer to audited EPS Italy € 1.2mio revenues under Italian GAAP. Consolidated Group IFRS
revenues amount to € 0.4mio, as approx. € 0.7mio gross nominal sales under IFRS have been recorded with
the IAS18 “gross to net” accounting method (disclosing just the net margin and not the gross revenues) due
to a IFRS treatment caused by the outsourcing of the supply. Such outsourcing was mainly due to the fact
that the related purchase orders were received in 2015 before the Elvi Energy acquisition and the
completion of the new manufacturing plant, as better detailed in Section 3.3.1 of this Management Report.
In 2015 the Group pursued a completely new “unsubsidized” business model, resulting in a significant
reduction of the 2015 revenues and cash flow of the Group which, during 2013 and 2014 financial years,
materially derived from public sector subsidies granted within the context of the participation of the Group
in projects financed or co-financed by public sector entities. The pursuing from 2015 of a completely
“unsubsidized” business model, entailed a dramatic reduction in 2015 of the proceeds from such subsidized
activities and related other income.
54
In 2015 and in particularly after the the IPO, which gave to the Group the resources to implement in
concrete its business strategy, the Group decided to invest heavily in securing an excellent team, an
appropriate manufacturing capacity, a strategic acquisition to verticalize the value chain and the internal
manufacturing process, and solid commercial relationships to scale up growth in 2016. In this respect,
revenues generated in 2015 are mainly related to services and supply to old customers in the
telecommunication sector, and supply to system integrators, and the effects of the 2015 investments and
strategy execution will be visible from early 2016.
The adjusted EBITDA, i.e. earnings before interest, tax, depreciation and amortization, R&D related
product development costs and other non recurring expenses, for financial year 2015 is €(2.6)mio basically
incomparable with the €(1.5) mio. of financial year 2014, when the public sector subsidies received were €
807,030 and there were not relevant costs at P&L for product development, public market capital increase
and new manufacturing plant.
In addition, the evaluation of the highlighted restated result shown above should take into account that at
the end of 2015 the Company had (i) a new manufacturing plant, while in 2014 a capacity of 2MW-month
for the size of the new technology was unachievable; (ii) an appropriate organization in terms of human
resources and governance; (iii) € 8.6 million cash and cash equivalents; and (iv) was listed on the French
regulated market of Euronext.
6.2. Backlog for 2016, customers and geographical diversification
In light of the fact that the effects of the 2015 investments and strategy execution will be visible from early
2016, the Group estimates the current backlog of 2016 order and sales based on the current arrangements
55
with customers of approximately € 2.3mio, which essentially means almost 2 times the nominal sales
accounted in 2015 and more than 5 times the group IFRS revenues.
In terms of diversification, sales generated in 2015 were mainly from telecom operators and telecom,
infrastructure and data centre system integrators. The current 2016 backlog and the expected 2016
revenues would have, on the contrary, a deeper diversification in terms of customer base and confirm the
effectiveness of the business strategy carried out and the effort made in 2015 to focus on the energy sector,
i.e. utilities, grid operators and commercial and industrial users.
In terms of geographical diversification, despite a 2015 focused on the old business sectors and mainly on
Italy, the current backlog and the pipeline in negotiation has a broader extension, namely in 17 countries
and 5 continents.
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6.3. Adjusted figures
Given the impact of non-recurring expenses, stock options accounting and extraordinary costs for product
development, the chart below outline a waterfall starting from nominal sales and ending to the net income,
passing through the adjusted EBIDTA and the net-adjusted income.
6.4. Main cash outlays
Out of the €14.4mio resources raised in 2015 during the IPO process, approx. €11.7mio have been invested
in the new facilities, R&D activities, the acquisition of Elvi Energy, human resouces and extraordinary and
other operating expenses.
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Such costs have been in part recorded at costs in the P&L, in part recorded at equity or capitalized.
The chart below outlines the main cash outlays in 2015 and related accounting treatment.
6.5. Pro-forma net financial position
Net financial position as at 31.12.2015 was €8.29mio. However, to have a clearer picture of the fact that the
majority of the proceeds paid for the acquisition of Elvi Energy will be reinvested in 2016 in a capital
increase reserved to the former Elvi Energy shareholders and management, the chart below outlines a pro-
forma net financial position, which includes the Elvi Energy and MCM real impacts, and the VAT receivables
outstanding, without however taking into account the full working capital impact.
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6.6. Credentials, installed base and market share
Despite the fact that the consolidated data post Elvi Energy acquisition will be visible only from 2016, the
current aggregated installed base marks a step change in the credentials of the Group, which can be now be
considered as a Vertically Integrated Energy Storage Company with 44.3MWh installed in 21 countries, with
systems installed in the most prestigious grids and networks, like Terna, Enel, Acea, and GNF.
6.7. Human Capital
At 31 December, 2015 the total of Group employees was 42, for an organization including dedicated
business partners totalling 57 human resources. Compared to 2014, total employees increased by 44.8%.
The proportion of women among total employees was 21%.
The human resources turnover was very positive: to strengthen the Group’s organization 26 new people
were hired in 2015, there were no dismissals and 5 resignations.
EPS has also launched a recruitment campaign since June 2015 that will continue on 2016: more than 19
new job positions are expected to be filled within 2016.
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6.8. G
e
n
d
e
r
D
iversity
The Group promotes the careers of women and getting the work-life balance right between employment
and family. In comparison to 2014, in 2015 we increased the percentage of female workforce from 18% to
21%.
The results of appraisals in 2015 have allowed an increase of promotions by 6% and 66% of these
promotions involved women within the Group who did not hold previously managing positions.
6.9. Headcount by function
Our energy experts and technologists, their skills and competences are our primary assets and this means
we have a specific responsibility towards our people.
As we want to develop our business and climb the value chain the Group considers R&D critical for active
innovation and corporate growth.
Regarding the distribution of employees by occupational category, technology and R&D and engineering is
the most representative area: 43% of the EPS’ women and man work on innovative projects and
technologies.
Indicator 2015
Total headcount 57
Breakdown by gender M/F 79%/21%
Recruitment 26
Dismissals 0
Resignations 5
Variation in Human Resources + 21
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6.10. Generation Diversity
The Group cares about with the balance of its employees’ age pyramid, and seeks to keep the
proportion of its youngest and oldest employee sectors consistent.
6.11. Headcount by degree
The Group boasts an extremely talented staff, with almost 73% of the headcount with a University
Degree of which 48% in Engineering, 25% with a Ph.D. or an M.B.A., while 27% of the people have a
technical profile.
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6.12. Headcount by geographical area
Since the end of H1 2015, the Group has increased its global presence by launching operations in
San Francisco on October 2015, by appointing on November 2015 a highly experienced energy
executive to lead the development on the Asia-Pacific market, Mr Khek Koon Then, and by
establishing key partnership for business development with dedicated resources such like the
Bryanston Resources team, and Massimo Quattrocchi.
6.13. Our team, engaged stakeholders
The Group offered stock options to all its employees for the first time in 2015, by allocating stock
options plans and profit sharing plans. As a result today 3.55% of fully diluted shareholding is held
by Group’s employee and 10.77% is held by its directors.
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6.14. Evolution in compensation, our main investment
Due to the growth from 2014 to 2015 of the whole EPS staff, total compensation for the Group
almost doubled from Euro 1.1mio in 2014 to Euro 2.2mio in 2015.
Compensation shall be based and benchmarked on the collective industry scheme for metal-
workers (Contratto Collettivo Nazionale del lavoro, CCNL Metalmeccanici). As per 2015 the total
compensation of the EPS employees was 41% higher than the minimum compensation guaranteed
per each category by said collective scheme agreed with the Trade Unions.
6.15. Health and safety as a priority
The key performance indicators we use for occupational safety are the Total Recordable Injury Rate
(“TRIR”) and the Lost Time Injury Frequency (“LTIF”) the number of accidents with the loss of at
least one day of work. In the reporting year 2015 we succeeded in maintaining the number of
occupational diseases to zero and we had only one occupational injury that caused the loss of no.
3.5 working days.
6.16. Absenteeism
The Total Absenteeism rate, which is a key indicator for measuring employee engagement and
motivation, in 2015 was 1.1%. It has to be noted that 0.8% was due to sickness, and therefore the
adjusted absenteeism rate, calculated taking into account the most conservatives parameter
(including maternity leave as per Methodology Note in section 6) is totalling 0.3%.
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6.17. Training
The exchange of information and the dissemination of a corporate culture through initiatives to
raise awareness and specific training courses delivered to the entire workforce with no exceptions
are fundamental to maintaining good safety results. As required by the law the Group has a Health
and Safety Executive Committee. During 2015 the Group has invested in 440 training hours divided
in:
6.18. Sponsorships and charities
EPS contributes to associations intervening in the areas of solidarity and childhood, by providing
financial assistance to support their projects. In 2015 the Group launched a twitter contest in
cooperation with the national newspaper La Repubblica to invite all the non-profit organizations to
tweet on how they spent one second of their time.
The winner was the AIEonlus (Associazione Italiana Endometriosi), received a funding of 5,000 euro
(the financial equivalent of one second of energy consumed in Italy) to their main project.
6.19. Our responsibility to the environment
Each year the Group has been compliant with the requirements of the ISO 14001 certification.
The Group has also obtained without reserves the ISO 9001 certification, for the fulfillment of the
specific requirements for a quality management system
the Group dedicated in 2015 to ISO 14001, ISO 9001 and CE, CSA and UL certifications investments
for Euro 61,500 and has a budget in 2016 of approx. Euro 500,000.
Research and development activities
7.3. Current Research and Development activities
After the successful IPO process, starting from May 2015 significant research and development activities
have been performed for the development of the HyESSTM platform.
System architecture has been defined in a modular concept: 25 kW P2P modules are the base elements to
be connected in parallel to reach the requested size in different installations and managed by single Energy
Management Unit (EMU).
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Design and development activities have been performed on the main components of the overall system,
thanks to the expertise of R&D and Innovation team of the Group supported by leading international
experts and companies and by a dedicated cooperation agreement with the Energy Department of
Politecnico di Torino.
7.3.1. Alkaline electrolytic stack
A complete new design of the electrolytic stack has been developed under the frame of the Joint
Development Agreement with Industrie De Nora S.p.a., worldwide leader in electrode development
and manufacturing. Innovative activated cathode electrodes have been used achieving significant
increase of current density (from 2 to 6 kA/m2, thus increasing energy density and H2 and O2
production) while increasing energy efficiency (i.e. 70% electrical efficiency at 6 kA/m2). These results
make the electrolyser developed by the Group the best-in-class worldwide. New materials for frames
and separators have been detected in order to target 10,000 hours durability requested by energy
storage applications, as well as the overall material compatibility has been revised at both
component and system (P2G) level, thanks to the support of Politecnico di Torino. Endurance tests
on the overall system are in progress (almost 2,000 hours already performed).
7.3.2. Fuel cell stack
A complete new design of the fuel cell stack has been developed.
International expert in fuel cell stack development, Dennis Curtin, thirty years experience at DuPont,
North Carolina, has been appointed to perform a comparison of graphite, composite and metallic
materials with respect to cost, investment and durability for fuel cell stacks bipolar plates for
stationary applications. Results coming from such analysis, confirmed by independent research of
R&D and Innovation departments of the Group, outlined the preference for graphite plates at this
stage. Single cell area has been increased from 200 cm2 to 300 cm2, flow field of the bipolar plates
has been redesigned completely, thanks to the support of Italian experts in the field (Dolomitech) and
the overall mechanic of the fuel cell stacks as well as sealing and tightening issues have been deeply
analysed with the support of FEM (Finite Element Method) analysis of Politecnico di Torino. First
prototype has been assembled and it is currently under testing. First tests results are perfectly in line
with modelling forecasts. At system (G2P) level the overall material compatibility has been revised,
thanks to the support of Politecnico di Torino, in order to target 15,000 hours durability for main
components, requested by energy storage applications.
7.3.3. DC/DC converter
An innovative 25 kW DC/DC Converter 48VDC-500VDC operating in bidirectional mode in order to be
used for both providing power to 25 kW electrolytic stack (i) and converting power coming from 25
kW fuel cell stack (ii) has been developed by the Group. Design and development activities have been
allocated to Prima Electro. Design has been performed taking into account optimization in term of
costs, efficiency and size as a function of commutation frequency (>100kHz). Impact on
electromagnetic compatibility has been considered as well. Two prototypes have been assembled
and are currently under testing.
7.3.4. Local controller and EMU (Energy Management Unit)
A local PCL (Programmable Logic Controller) for the complete management (input/output signals,
analogic, digital, etc.) of the 25kW P2P module, controlled by EtherCAT field bus, has been fully
developed by the Group. Design and development activities have been allocated to Prima Electro.
The Local Controller is currently under HW (hardware) and SW (software) debug.
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The EMU for the complete management of an indefinite number of 25kW P2P modules, including
inverters and remote communication with VPN router, has been fully developed by the Group.
Design and development activities have been allocated to Prima Electro, supported by experts from
Istituto Superiore Mario Boella (ISBM). First prototype is in the assembly phase.
7.3.5. DC/AC converter
Smart inverters developed by Elvi Energy (see paragraph 6.2.3 (iv)) are the best solution for
HyESSTM platform because of their capability to effectively interface the renewable source or the
energy storage to the grid and govern the power flow between generators, user load, grid and
storage systems. Thanks to the innovative integrated droop control, such inverter can solve the
stability problem of microgrids acting like a rotating machine that provides inertial response to the
grid.
7.3.6. Battery pack
Scouting activities have been performed by R&D and Innovation teams of the Group with regards to
power-intensive Lithium-based batteries available in the market, in order make HyESSTM solution
able to provide flexibility services. Deep analysis of chemical composition of different Lithium-based
batteries resulted in LiFePO4 (Lithium Iron Phosphate) selection able to operate with steady charge
and discharge voltage. Acquisition of Elvi, that has already integrated 11 different battery
technologies, strengthens dramatically skills in this field and allows preferred contacts with main
batteries suppliers (e.g. Lithium Titanate Toshiba Super Charge Ion Battery which is able to provide a
“square” characteristic, i.e. same charge and discharge rate).
7.3.7. H2 and O2 purification
In the previous addressed market, back-up, purification of H2 and O2 coming from the electrolytic
stack was not necessary because the (limited) impurities of both H2 and O2 could be well tolerated
by the fuel cell in the limited operating hours (1000 hours) of the system; by contrast, in the energy
storage sector purification of H2 and O2 is a mandatory requirement to target 15,000 operating hours
of fuel cells.
Development of proper separators has been performed with the support of CFD (Computational Fluid
Dynamic) analyses of Politecnico di Torino. Prototypes have been built and are under testing.
Scouting activities have been performed by R&D and Innovation teams of the Group and main
international purifier developers and manufacturers have been contacted and evaluated. CE certified
deoxo (for hydrogen stream) and dehydro (for oxygen stream) purifiers have been selected and
purchased by ErreDue; they are able to reduce O2 in H2 and H2 in O2 down to 10 ppm with an
atmospheric dew point of -25°C, compatible with possible compression stage downstream. Delivery
of purifiers is expected by IQ 2016.
7.3.8. Compression
Scouting activities have been performed by R&D and Innovation teams of the Group in order to point
out technologies and certified products able to compress >10 m3/h hydrogen flows from 30 to 200
bar. Compression of oxygen has been excluded at this stage. Main international compressor
developers and manufacturers have been contacted and evaluated. CE certified hydraulic booster
able to compress 50 m3/h hydrogen from 30 to 250 bar has been selected and purchased by CuboGas;
delivery is expected in IQ 2016.
7.3.9. Storage
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Scouting activities have been performed by R&D and Innovation teams of the Group and
international cylinder manufacturers have been contacted and evaluated. Worldwide leader in
cylinder manufacturing, Tenaris, has been selected. A module of several cylinders to be inserted in
single transportable container, equipped with manifolds is under development. Delivery is expected
in IIQ 2016.
7.3.10. RAMS (Reliability, Availability, Maintainability, Safety) analysis
RAMS analyses of the overall HyESSTM architecture has been performed by the Group thanks to the
support of Italian experts in the field (RAMS&E). It included risk analysis (HAZOP, HAZard and
Operability studies), availability analysis (FMEA, Failure Mode and Effect Analysis), safety analysis
(SIL, Safety integrity level) of the overall HyESSTM architecture, preparatory step to the certification
process.
7.3.11. Certification process
Completion of CE certification process is foreseen by 31st May 2016. Compliance with the following
European Directives; Low Voltage Directive (LVD), Machinary Directive (MD), ElectroMagnetic
Compatibility Directive (EMCD), Pressure Equipment Directive (PED) are under evaluation. In
addition a dedicated assessment of Atmosphere EXplosive (ATEX) directive is in progress to prevent
hazardous zones.
7.3.12. Regional and European R&D Projects
Many of the research activities mentioned in paragraph 11.2.1. have been carried out in the context of
international research projects in collaboration with industrial partners and centres of excellence in
research.
The Group is willing to continue to participate as partner in many research and development projects
supported by European, national and regional authorities enabling it to exploit the expertise and
know-how of the Group and to acquire new knowledge in order to continue the path of the
innovation process of its products.
1. Regional projects – Piedmont Region Italy
HYSOLWIND project: launched in 2012, the project has led to the development and realisation of an
integrated and optimized solution for energy storage in the off-grid sector that integrates hydrogen,
wind and solar. The innovative solution is installed and under testing in the town of Macomer,
Sardinia. Electro Power Systems has developed a customized ElectroSelfTM unit with 2Nm3/h
hydrogen production, able to be effectively supplied by PV and wind turbine and cooperates in the
project with Eolicar, supplier of the wind turbine, and Prima Electro S.p.A., developer of dedicated
power electronics. The project has been completed on 30th November 2014.
GBMP project: Electro Power Systems acted as a partner in a consortium made up of regional
industrial companies, Spesso Gaskets and Ferioli & Gianotti Thermal Treatments and with the
technical and scientific excellence of the Department of Applied Science and Technology of the
Polytechnic of Turin. Launched in 2012, the project aimed to develop metallic bipolar plates with
integrated sealings for fuel cell stack. The resulting stack, to be developed by the Group, would have
significant advantages in terms of compactness and possibility of industrialization. The project is
completed from both a technical and administrative point of view.
2. Regional projects – Valle d’Aosta Region Italy
Project VDA (Valle d’Aosta): This project developed a new version of ElectroSelfTM system which is
easily integrated with renewable resources. The Group was the sole partner in this project, which
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began in 2011 in continuation of the first project initiated in this region, on the development of
ElectroSelfTM concept (2008 to 2011), and led to the development of a new technological generation
of ElectroSelfTM system. The improved ElectroSelfTM system is a fully modular solution with an
electrolytic cell of 30 bars that can be connected perfectly to renewable energy sources. The project is
completed from both a technical and administrative point of view.
ALCOTRA project: the ElectroSelfTM platform becomes a co-generation solution, capable to
generate heat and power. Two units have been developed and installed and are now under testing as
heat and power solution coupled with renewables. Two application fields are explored: off-grid
village in Lavasè, Valle d’Aosta Region and greenhouse for plant cultivation in Albenga, Liguria
Region. EPS Manufacturing acts as the only participant of this project. Development and installation
activities have been completed. Testing will last up to 3Q 2016.
3. European project – Fuel Cells and Hydrogen Joint Undertaking
FITUP project: Fuel cell field test demonstration of economic and environmental viability for portable
generators, backup and UPS power system applications. The project concerned the supply and
installation of 19 hydrogen-based fuel cell systems installed as backup power units in selected sites of
major European telecom operators: Swisscom, Polycom, Wind, Turkcell. EPS Manufacturing has
been the coordinator of this European flagship project and the supplier of the 11 fuel cell systems (7
ElectroTM et 4 ElectroSelfTM) installed as backup power units.
The project covered two years of intensive field testing by independent research centres for a total of
10,397 cycles, 6,573 hours of testing who demonstrated an on-field average reliability of 99.4%. The
project is closed from both a technical and administrative point of view.
FLUMABACK project: The Group is the coordinator of the strategic alliance of international industrial
actors: Domel (Slovenia), Onda (Italy), Tubiflex (Italy) and NedStack (the Netherlands). The project
has the objective to foster the technological evolution of more efficient, cost- effective, reliable,
durable Balance of Plant (BoP) components (blowers, humidifier, heat exchanger) for more efficient,
cost-effective, reliable and durable backup applications thanks to expertise of international research
centres as Environment Park of Torino (Italy), Joint Research Centre in Petten (the Netherlands),
University of Ljubljana (Slovenia), Fundación Hidrógeno Aragón (Spain), Joseph Stefan Institute
(Slovenia). EPS Manufacturing acts as final user of the BoP components under development, defining
technical and economical requirements. The project is closed and the Group has received the final
tranche of the contribution on 5th February 2016.
4. European projects – Fuel Cells and Hydrogen 2 Joint Undertaking (“FCH2JU”)
HEALTH CODE project: real operation PEM fuel cells health-state monitoring and diagnosis based on
–DC/DC converter embedded Electrochemical Impedance Spectroscopy (EIS). The European project
aims at implementing an advanced monitoring and diagnostic tool for μ- CHP and backup PEM fuel
cell systems. The Group is part of a consortium characterized by partners with a wide experience in
the industry and research fields, such as Dantherm Power in Hobro (Denmark), EIFER Europaisches
Institut fur Energieforschung EDF-KIT Ewiv in Karlsrhue (Germany), Università degli Studi di Salerno
(Italy), University of Aalborg (Denmark), Torino E-District Consorzio (Italy), FCLAB of Université de
Franche-Comté in Belfort (France), Vitamib in Grenoble (France). EPS Manufacturing will act as final
user of the diagnostic tool to be developed, to be implemented in the future product versions.
The project started on 1st September 2015 and will run for 3 years. The total approved budget is
338,750 euros with 100% contribution.
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New project proposals are under preparation within the framework of the 2016 Annual Working Plan
of FCH2JU in reply to the topic “Large scale demonstration of commercial fuel cells in the power
range of 100-400 kW in different market applications” (estimated funding 7.5 mio€) and
“Demonstration of fuel cell-based energy storage solutions for isolated micro-grid or off-grid remote
areas” (estimated funding 5 mio€). The Group is actively working in preparation of strong consortia
including key final users.
5. European Project - Innovative Small and Medium-sized Enterprises - SME instrument
(Horizon 2020)
MsESS project: Megawatt sized Clean Energy Storage Solutions. The project is focused on 25 kW
G2P and 25 kW P2G modules development to modules of 25 kW G2P and 25 kW P2G Module, that
can be easily connected in parallel to achieve the MW size in order to address the huge market of
energy storage. EPS Manufacturing is the only participant of the project, although the project will be
realized in close cooperation with Prima Electro and Industrie De Nora. The project foresees three
phases:
(A) Development of 25kW core components: electrolytic stack, fuel cell stack, DC/DC converter;
(B) assembly and testing of the modules;
(C) manufacturing of the MW sized full system;
(D) testing of the MsESS solution on-field at real end-user site.
The project has been submitted four times under the high-competitive (6% success rate) new
European financial scheme that supports Innovative Small and Medium- sized Enterprises (SME
instrument). The total foreseen budget is 3,720,750 euros with an expected contribution of 2,500,000
euros.
In the four submissions the project received excellent evaluation in terms of real market potential,
technology, quality of the team, efficiency of implementation and business plan, but, unfortunately it
could not be funded. Indeed the project received an official “Seal of Excellence”, certificate delivered
by European Commission, signed by Carlos Moedas, Commissioner of Research, Science and
Innovation and Corina Cretu, Commissioner for Regional Policy, stating that the project was
successful in a highly competitive evaluation process as an innovative project proposal thus
recommended for funding by other sources (national or regional).
A fifth submission is expected by next cut-off date, on 4th April 2016.
6. European Projects – Work Programme 2016-2017 – Secure, Clean and Efficient Energy
(Horizon 2020)
New project proposals are under preparation within the framework of the call Competitive Low-
Carbon Energy in reply to the topic “Demonstration of smart grid, storage and system integration
technologies with increasing share of renewables: distribution system” (estimated budget funding
12-15 mio€). The Group is actively working in preparation of strong consortia including key grid
operators.
Last, the Group is finalizing the contract of 136,800 euros from Italian Veritas Group S.p.A. for the
supply and installation of 20 kW hydrogen energy storage system coupled with renewables. The
plant, currently under testing in the Group facility, will be installed at the “Polo integrato di
trattamento rifiuti” in Marghera (Venice) by July 2016. This is the result of the agreement signed by
the Ministry of Environment, Land and Sea and the City of Venice. The overall project aims at testing
and comparing different technologies for energy storage: lead-batteries, Sodium-batteries, Litium-
ion batteries, Redox-flow batteries, Hydrogen P2P solution. Thus, the project represents a concrete
69
opportunity to validate technological and economical competitive analysis performed by the Group
so far.
7.4. Future investment Research & Development activities
Development activities are expected at both component and system level with respect to HyESSTM
platform.
7.4.1. Power-to-Gas enhancement: high density alkaline electrolytic stack
Under the frame of the Joint Development Agreement with Industrie De Nora S.p.A. innovative
activated anode electrodes will be included in the alkaline electrolytic stack and optimization of flow
field will be pursued. A further increase of current density is expected (thus increasing energy density
and H2 and O2 production) keeping the same high electrical efficiency achieved so far.
7.4.2. Gas-to-Power applied research: metallic-based fuel cell stack
Engineering and design transition from graphite-based to metallic-based fuel cell stack will continue
to be pursued, in light of a massive production of stacks (>750 stacks/100 cells/year). Expected
advantages are mainly related to cost reduction and industrialization of the assembly process.
7.4.3. Voltage conversion: industrialization of the first DC/DC converter at 97% efficiency
Industrialization and optimization of the 25 kW DC/DC Converter 48VDC-500VDC operating in
bidirectional mode is expected in order to achieve 97% electrical efficiency.
7.4.4. Energy Management: integration of the EMU (Energy Management Unit)
EMU developed for HyESSTM platform will be integrated with the Master Control Software and
SCADA (Supervisory Control And Data Acquisition) developed by Elvi, in a joint development activity
of both EPS Manufacturing and Elvi Energy.
7.4.5. Hydride Storage: research and pilot testing
Possible integration of hydride storage as an alternative of cylinders could be evaluated in the frame
of a demonstration project lead by GKN, leader worldwide in powder metallurgy, currently under
discussion. Thanks to their high volumetric storage density, hydride storage could replace the
compression stage of current HyESSTM platform with significant advantages in terms of electrical
efficiency and simplification of certification process. However, apart from current cost constrains,
such integration presents some technical issues to be verified in terms of thermal requirements;
indeed, such validation is in the scope of the project.
7.4.6. HyESSTM industrialized containers: extreme conditions resilience
Current HyESSTM platform has been developed to be operated in containers in external temperature
range of -5°C + 45°C. Dedicated research and development activities will be deployed on containers
to operate HyESSTM in extreme environmental conditions: at very low temperature (-40°C) and at
very high temperature (+55°C).
Development activities are expected on current integration and hybrid products and solutions in the
context of the HyESSTM platform enhancement.
7.4.7. Power Conversion Systems (PCS)
Design of new large scale PCS with a rated power up to 1000 kVA, air-cooled, to complete the family
of inverter for PV and BESS applications. Models: C-PV1000, C-BESS1000. Certification for: safety
IEC 62109-1 and -2 + IEC 62407-1, CEI 0-16 (new grid connection rules valid also for BESS). This type
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of PCS is required for the realization of large size Battery Energy Storage Systems (“BESS”) and
Hybrid Power Plants (“HPP”).
7.4.8. Battery Management Systems (BMS) and Micro Grid Controllers (MCG)
The control interface software for the integration of different BMS control for new possible batteries
(other Lithium-ion and special Lead-acid, in addition respect to the nine types of battery used today)
will be developed and integrated in the SCADA (Supervisory Control And Data Acquisition).
7.4.9. Battery Energy Storage Systems (BESS) and Hybrid Power Plant (HPP)
(a) A new remote supervision system (based on the use of VPNs) will be designed and developed
to have the control of BESS and HPP installed around the world including EMU interface for
Hydrogen and Wind Turbine Supervision.
(b) The integration of the wind turbine control features into the MGC controller, through the
development of customized software interface blocks, will be developed to address HPP
projects including wind turbines.
(c) A “standard” 20ft container HPP 125 kVA, on-grid and off-grid operation, with PV and Storage
input on a common DC bus will be designed, and engineered.
Risk factors
The Company has proceeded to a review of the risks which could have a significant negative impact on its
activity, its financial situation or its results (or its ability to reach its goals) and there are no other significant risks
than those presented in the present section.
8.1. Risks associated with the Group’s business and industry
8.1.1. Risk associated with the commercial transition from ElectroTM to Hybrid Solutions undertaken by
the Group
Up until 2012 the Group’s turnover corresponded essentially to sales of the ElectroTM system. In
2012, the Group reoriented its policy and decided to end the marketing of this product in favour of
ElectroSelfTM and HyESSTM (“Hybrid Solutions”), presently in the final development and
precommercialization phase. The transition from ElectroTM to Hybrid Solutions has necessitated a
delay in scientific and industrial developments which translated into a lessening of the sales of
ElectroTM before the Hybrid Solutions can take its place. Furthermore, customers and geographic
areas now targeted for the marketing of Hybrid Solutions are different from those that were targeted
for marketing ElectroTM. In essence the commercialisation of ElectroTM was focused on the
emergency power segment developed for the telecommunications sector principally in Italy. On the
contrary, the Group’s holds the ambition to commercialise Hybrid Solutions across a larger diversified
base of commericial and industrial users, including utilities and oil and gas companies, operating in
varied geographic areas. Accordingly, the results achieved by the Group to date, cannot predict
future earnings.
In the event that the Group does not succeed in the commercial transition between these products,
or succeeds more slowly than what the Group anticipates this could have a material adverse effect on
the Group’s business, financial condition, results of operations or prospects.
8.1.2. Risk associated with the actual market differing from the potential markets targeted by the
Group
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Within the context of its commercial strategy the Group has undertaken and will undertake case
studies based on working hypotheses developed with network/grid operators with the aim of
validating the solutions proposed by the Group. These case studies are based on complex and general
parameters, from the industry and/or specific data from that instance (client activity, applications,
geographic area, and climate conditions). It is therefore difficult to generalize results to the entire
market and determinate the actual market from the specific results of the case studies.
The Group cannot guarantee that the economic benefit of these case studies can be generalized in all
circumstances, and accordingly determine with certitude the commercialization potential of the
Group’s systems. Therefore, the potential market could be much smaller than what the Group
anticipates which could have a material adverse effect on the Group’s business, financial condition,
results of operations or prospects.
8.1.3. Risk associated with the market for Hybrid Solutions, never developing or developing more
slowly than the Group anticipates
(xxii) Risk associated with a negative view of hydrogen based Hybrid Solutions such as part
of those proposed by the Group amongst the principal actors in the market
Hydrogen production by the process of water electrolysis with an electric current
(application “power to gas” (“P2G”)) is well known, as is the production of electricity from
‘hydrogen (“gas to power” application (“G2P”)). The Group has deployed a solution
combining both processes where hydrogen is used as energy storage, and the electricity
used in the first reaction may be returned later (application P2P). the Group cannot
guarantee that the constraints to the adoption of P2P or G2P taken separately in terms of
profitability, logistical constraints and low modular systems will not adversely impact the
perception of and adoption of a method of storing energy to produce hydrogen, such as
that sold by the Group.
(xxiii) Risk of resistance towards energy transition
There is always a risk that users do not adopt the technology developed by the Group or
they do so belatedly. Such users might have concerns in particular in using or deploying
hydrogen or battery based technology, considering the greater complexity of the solution
developed by the Group than traditional technologies. Indeed, the latter, which include
conventional batteries or diesel generators commercialized by multinational players, can be
perceived by users as enjoying advantages in terms of reliability, security of supply, and
feedback, and make it more difficult to adopt solutions developed by the Group.
The technology behind Hybrid Solutions represents a disruption in the energy storage
market and standby power. It is possible that this technology is not necessary or that it takes
more time to be adopted than what the Group anticipates.
(xxiv) Risks associated with changing economic viability of the products developed
by the Group
The adoption or not by potential customers of a technology such as that developed by the
Group may be affected by many factors notably including: the development and
improvement of production and existing electricity storage technologies not integrated by
the Group, changes in the price of fossil fuels, the future cost of fuel used in existing
technologies, the cost of manufacturing and supply of the main components of the systems
developed by the Group, and in particular the cost of platinum group metals and the level of
platinum recycling, it being a key catalyst used in fuel cells developed by the Group. Should
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the price rise a higher production cost may need to be reflected in the selling price of the
Group’s solutions, and thereby reduce their price advantage.
The occurence of one or many of these factors could have a material adverse effect on the
Group’s business, financial condition, results of operations or prospects.
(xxv) Risks associated with the dependence of the Group's operations on volatile oil and
energy prices
The price of oil, natural gas and other hydrocarbons and other energy prices are volatile and
vary notably in response to fluctuations in supply and demand at local, regional and global
levels, and due to political entities such as the Organization of Petroleum Exporting
Countries (“OPEC”), and general economic and political conditions.
In the field of energy storage systems, the decline in oil and gas prices could make the
solution proposed by the Group less competitive against other solutions, such as diesel
generators and gas conventional generation.
In the field of energy storage solutions integrated with renewable energy sources, reducing
the cost of producing electricity from fossil fuels, especially from oil and gas would impact
the deployment of production from renewable energy sources, and therefore reduce the
interest in and market for the Group’s solutions.
8.1.4. Risks related to technological evolution
(xxvi) Risks associated with technological changes in the energy industry could
render the Group's technology obsolete
The markets for energy storage targeted by the group (both in terms of sector and
geography) are characterized by technological change and evolving industry standards.
There are reports of laboratories and universities claiming to be working on revolutionary
technology that could be several orders of magnitude more efficient than storage systems
currently in use. Although so far all such announcements have come with the caveat that
commercial development will require several years, if not decades, the chance that a
technological breakthrough will jeopardize the market positioning of the Group much
sooner than expected cannot be completely ruled out.
The future success of the Group will depend on its ability to adapt quickly to changing
technologies, to adapt its products and technologies to evolving industry standards and to
improve the performance and reliability of its systems and technologies to quicly integrate
any new storage technology.
The competition vis-à-vis the Group’s systems will come from improving current battery
technologies and the entrance of new alternative battery technologies integrated by other
players or the growth of the market share of these new technologies and system integrators,
more efficient and / or less costly technologies (eg, lithium-ion batteries, sodium-sulphur
batteries and new generation batteries such as redox batteries). Each of these competitors
has the potential to take market or reinforce its share in each market targeted by the Group.
To achieve market acceptance for its technologies, the Group must effectively anticipate
and offer products that meet changing customer demands in a timely manner. If it fails to
develop products that satisfy customer expectations in a timely and cost-effective manner,
its ability to renew its contracts with existing customers and its ability to create or increase
demand for its technologies and products will be harmed and this could have a material
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adverse effect on the Group’s business, financial condition, results of operations or
prospects.
(xxvii) Risks associated with the complexity of Hybrid Solutions
The hybrid solution HyESSTM developed by the Group is an important part of the future
development of the Group. However, its development and implementation are particularly
complex because of the development of algorithms contained in the source code, and the
complexity of the necessary electronic power components and controls. Furthermore, the
Group does not have sufficient perspective to evaluate the performance of its technologies
in hybrid solutions, and therefore is not able to understand in full all the changes and
optimizations that might be needed in the future or requested by the market.
Accordingly the Group cannot guarantee that the development of the HyESSTM produces
the expected results, which could have a material adverse effect on Group’s business,
financial condition, results of operations or prospects
(xxviii) Risks associated with the reliability of systems designed for smart grids
The systems that are developed for smart grid applications are particularly complex. These
applications imply levels of technology, logistics, and innovation that are particularly high,
notably as concerns the remote management of the electrical grid.
If the Group was not able to manage these risks tied to guaranteeing the reliability and the
remote management of its systems it could have a material adverse effect on Group’s
business, financial condition, results of operations or prospects.
8.1.5. Risks related to client base
The Group currently relies on revenues from a small number of customers and there can be no
assurance that it will be able to obtain or retain additional new customers. The commercial transition
from ElectroTM to Hybrid Solutions performed in the last three years led to looking for a different
clientele than that the Group was addressing before. The clientele that previously existed, to whom
the Group has sold ElectroTM and that it provided services may not follow this commercial transition,
particularly in light of the fact that their business model, mainly focused in telecommunications, may
not require energy storage.
Nor can the group guarantee that during its commercial transition from ElectroTM to Hybrid
Solutions, it will be able to expand its client base in order to reduce its dependence on a small number
of clients.
MGH Group (system integrator for data centers), Advanced Devices (system integrator for telco
operators and DSOs) and Telecom Italia S.p.A. respectively represent 23%, 59% and 16% of the
revenues of the Group in 2015 and Vitrociset S.p.A and Telecom Italia S.p.A. respectively represent
19% and 15% of the revenues of the Group in 2014, the four largest clients of the Group represent
100% of the revenues of the Group in 2015 and 93% in 2014.
8.1.6. Risks associated with implementing the Group's growth strategy by entering new and/or
emerging markets
Besides the countries in which the Group is active today, the operations of the Group might be
extended to other countries in accordance with its strategy. The international deployment of the
Group will expose it to different economic, fiscal, legal, regulatory and political frameworks. The
possible complexity of these and future rules and regulations could result in delays in project
execution and/or significant costs in order to assure compliance with these rules and regulations.
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In particular, the Group’s growth strategy relies in part on the expansion of its businesses in emerging
economies. The costs associated with entering and establishing in such markets may be higher than
expected, and the Group may face significant competition in such markets. In particular, the Group
understands that its business may face a range of risks and challenges in its target markets in parts of
Latin America, India, China, Indonesia, and in countries in Africa including:
difficulties in managing overseas operations;
difficulties and delays in contract enforcement and the collection of receivables under the
legal systems of foreign countries;
regulatory and legal requirements affecting its ability to enter new markets through joint
ventures with local entities;
changes in laws and regulations;
inconsistent application of existing laws and regulations;
unclear regulatory and taxation frameworks and divergent commercial and employment
practices and procedures;
difficulties in obtaining regulatory local approvals and authorisations;
export and import restrictions;
multiple tax regimes (including regulations relating to transfer pricing and withholding at the
point of generation and other taxes on remittances and other payments from subsidiaries);
foreign investment restrictions and currency risks;
foreign exchange controls and restrictions on repatriation of funds; and
economic and/or financial sanctions concerning certain countries notably those taken
imposed by the United Nations, the European Union, France or the United States.
It is expected that these (or similar) risks could also be encountered in other emerging markets that
the Group may enter in due course.
If the Group is unable to manage the risks related to its expansion and growth in new and/or
emerging markets and therefore fails to establish a strong presence in those markets, its business,
results of operations, its prospects and financial condition could be materially adversely affected.
8.1.7. Risks tied to the evolution of national or international policies and regulation
The Group expects it will encounter an evolving national/international policy and regulatory position
across its markets in backup energy and energy storage for a significant period of time.
This evolution is likely to lead to uncertainty for the Group, its customers and its partners regarding
the conditions for commercialization and usage of the Group’s technology.
Also activities related to the storage of energy are at present favoured by certain public policies both
at the national and international levels that support carbon free energy either through favourable
rates, tax credits, subsidies or other mechanisms such as environmental regulations limiting carbon
dioxide emissions. A reduction of tax receipts, economic crises or slower economic growth could
reduce the amount of funds available for implementing such policies which support energy clean
storage solutions.
For example, government policy and regulation may (i) force potential customers to implement
backup or energy solutions which may impact the development of the infrastructure required by the
Group’s technology or (ii) prevent the deployment of storage technologies like and, therefore, affect
the Group’s business, results and prospects.
Moreover, large groups with adverse interests in the development of renewable energy sources,
could lead to the adoption of unfavourable regulatory developments for the Group’s technology or
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the delay in the adoption of regulations that could benefit the Group’s activities in the energy storage
market.
The occurrence of one of these factors could bring about a reduction or a slowing in the demand for
the renewable energy sources, storage technologies and/or the activity of the Group and the Group’s
business, financial condition, results of operations and prospects could be materially adversely
affected as a result.
8.1.8. The Group may not be able to provide for service and installation of its systems or post-sale
service
The Group’s systems require interventions and require installation support. To provide this, the
Group has set up, also benefitting from the Elvi Energy acquisition, a specialized engineering
department and suitable technical support made by electrical system engineers, an extremely rare
job position. However, the increase in system sales may require that the Group recruit accordingly
further qualified personnel to perform this type of operation. To manage this staff growth phase, the
Group is studying the possibility of establishing new partnerships with an international scope with
companies who could take over all or part of such support and installation activities post sale.
In case the Group is unable to recruit quickly enough, or if the Group was unable to establish such
partnerships, the Group may not be able to penetrate certain markets and / or honour its
commitments. The Group’s development pace could be affected which could have a material adverse
impact on its financial position, results and prospects.
8.1.9. Risks related to systems developed for sophisticated on-grid operations
Grid applications are the result of long-term complex projects with major actors in the grid business,
such TSOs and major utilties. They require the implementation of reliable solutions, in particular with
regard to the grid-tie or grid-forming inverter, algorithms of the remote management and
industrialization in order to be replicated on a large scale.
For these projects, the Group’s products are installed directly on site, without the possibility of
testing in full in the context of the factory acceptance test. Any failure or delay testing, sites and
installations on their remote control systems could adversely affect the Group’s competitiveness and
reduce its ability to sell its products. The facilities on-site and their remote control may encounter
problems and delays for a number of reasons, including the failure of technologies implemented by
the Group, the failure of the technology owned by other companies, failure to combine these
technologies properly, operator error, and the failure to ensure the maintenance and servicing of test
prototypes correctly. Most of these potential problems and delays are beyond the Group’s control. In
addition, these site installations, by their nature, can involve delays associated with products and
changes to their design, as well as the involvement of third parties in particular for testing and test
protocols.
Any problems or difficulties of facilities on site, whether from technology, installation, or remote
management could adversely affect the Group’s reputation and the reputation of its products and
limit sales, especially as customers of these applications consist of major players in the grid, and grid
operators. Such failures could deteriorate relations with customers, prevent the participation to
requests for proposal (“RFPs”) and force the Group to further develop its technology to address these
failures before installations on other sites, increasing manufacturing costs and the costs of its
concurrent projects which could have a material adverse effect on its fnancial position, results or
prospects.
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8.1.10. Risks associated with large customers having significant buying power and complex decisional
processes
The majority of the Group’s targeted markets, and particularly the telecom, grid and the energy
ones, are characterized by the presence of sizeable clients with significant buying power and very
complex decisional processes that involve several departments in order to have a purchase order
approved (i.e. departments relating to purchasing, infrastructure, the grid, innovation, legal, finance
and R&D departments and the in-field users). Business development activity of the Group requires
proximity in order to regularly deal with the different decision makers in the Group’s targeted
markets.
The strong buying power of the customers could reduce the gross margins impacting the
profitability of the Group, while the complexity and length of the decisional process could create a
delay in the issue of purchase orders, impacting therefore the financial condition, results or
prospects of the Group.
8.1.11. Risks associated with competitors that are larger than the Group
Many of the companies in the energy industry (including large groups and system integrators with
separate business units involved in energy storage technologies) have substantially greater capital
resources, research and development staff, facilities and experience available to them than the
Group does. Such entities have developed, may be developing or could in the future develop
products which are competitive with the Group’s business. Additionally, they may be able to devote
greater resources to the promotion and sale of such products. There can be no assurance that the
Group’s competitors will not succeed in developing or marketing technologies that are more
effective or less expensive than those developed or marketed by the Group or that would render its
technology or business model obsolete or non-competitive. The Group may need to invest
significant financial resources in research and development to keep pace with technological
advances and to compete effectively in the future, and there can be no assurance that it will be able
to do so successfully.
8.1.12. Risk of a declining price trend in the diesel generators and backup power segment
The market for businesses for whom a continuous supply of electricity is necessary to their
operations and the backup power sector and diesel generators industry are mature sectors and are
served by both traditional lead-acid battery and diesel generator manufacturers and by emerging
technology providers such as Genset, Cummins, Perkins, Kirloskar, Caterpillar, Honda, and
Mitsubishi. The industry is characterised by progressive sales price erosion both for traditional and
for emerging technologies in both cases mainly thanks to the increased volume and improved
manufacturing processes.
This trend is expected to become more pronounced in the future and the Group could be unable to
offset this drop in prices with an increase in volume of systems sold or the development of new
solution on a timely and cost-effective basis, or even to reduce its costs.
These events, if they were to materialise, would have a negative effect on the Group’s gross margin
and, therefore, on its results, financial conditions and outlook.
8.1.13. Risks tied to the deployment of the Group's solutions in off-grid areas
The market for off-grid areas is characterized by geographical fragmentation, often in remote areas
that require the deployment of significant human, educational, financial, logistical and technical
expertise. Operational and financial risks associated with this market could be larger than those
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inherent in projects related to these applications. The inability of the group to manage these risks
could jeopardize its position or its profitability in these markets.
8.1.14. Risks associated with contractual targets, performance milestones and failure to meet such
target and milestones
The Group has a number of customers and prospective contracts that require adherence to
milestones and performance targets. In the event that the Group fails to meet particular milestones
or performance targets under its commercial contracts, collaborations, joint developments or joint
venture arrangements, it would likely result in the failure of the project and possibly the termination
of the commercial contract, collaboration, joint development or joint venture. The occurrence of
this risk could have a material adverse impact on the activity, the financial situation, the results, or
the prospects of the group.
8.2. Risks associated with the technology, the intellectual property and the products
8.2.1. Risks associated with the inability to protect confidentiality of information, trade secrets, know-
how and intellectual property generally
Information and/or products may be disclosed or entrusted to public or private entities, clients,
subcontractors or any other contracting party under current or future agreements with the Group, for
the purpose of deployment, testing and development. In such cases, the Group requires the signature
of confidentiality agreements. Technologies, source codes, software and know-how generally, as well
as proprietary unpatented and/or un-patentable data are deemed equivalent to trade secrets which
the Group seeks to protect in part through confidentiality agreements.
Despite the huge effort and experience of the Group and an internal department led by the Chief
Innovation Officer is dedicated to that, there is no guarantee that the methods used by the Group to
protect intellectual property and/or know-how will give the expected level of protection or will be
complied with by third parties, nor that the Group will be able to take action in the event of non-
compliance. Moreover, the Group’s trade secrets may be discovered by its competitors, or
independently developed by them.
More specifically, the Group has no control over the conditions under which the third parties with
which it does business in turn use the services of other parties and protect their confidential
information, despite any clauses it may include in its confidentiality agreements. This is particularly
evident when the Group cooperates with large groups and utilities with which work for several
months in oder to define technical specifications and grid-designs.
In addition, the Company’s business is dependent upon the effective protection of its industrial
property rights. EPS Manufacturing is the exclusive proprietor of the main patents used in the course
of its business that are essential to its operations, with the exception of the Italian patent n°
T02012A000395 held jointly with Fluido System S.r.l.
EPS Manufacturing makes efforts to limit all the risks described below through regular legal
monitoring of its industrial property rights.
In the context of its “make or buy” strategy for the products developed by the Group thanks to its
entirely proprietary technology, EPS Manufacturing has granted three exclusive manufacturing
licenses to the following sub-contractor manufacturers: (i) one free of rights to Brighton NC Machine
Corp. for the line of the backup products developed by EPS Manufacturing until 30 June 2014 and
therefore not anymore in the strategic pipeline of the Group, (ii) one to McPhy Energy SA for the
manufacturing of the electrolitic cells developed and designed by the Group, as well as (iii) an
78
exclusive licence relating to the development of certain cathalist to Johnson Matthey Fuel Cell
Limited.
The occurrence of one or more of these risks could have a material adverse impact on the Group’s
business, prospects, financial position, results and development.
8.2.2. Risks associated with dependence on proprietary technology underpinned by intellectual
property which the Group may not be able to obtain, maintain, defend or enforce
The Group’s success will depend in part on its ability to obtain, maintain, defend and enforce its
patents and the other intellectual property rights that underpin its proprietary technologies and
products.
There is no assurance that:
any currently pending or future patent applications will be granted;
that the Group’s patent applications (and any subsequent or resulting granted patents) will
not be challenged by third parties;
where patents have been issued to the Group, that others will not be able to design around
such patents to create a competing technology or product;
that competitors will not develop similar products which are not within the scope of the
Group’s patents;
that third parties’ rights, including third party patents, will not have an adverse effect on
the Group’s ability to pursue some or all aspects of its business;
that, where the Group relies on confidential and/or proprietary know-how, others will not
gain access to it notwithstanding the Group’s protocols for protecting that know-how; or
that protection of patents or other intellectual property rights protection will be available
or effective in all the jurisdictions that the Group is targeting or in developing countries
where the Group’s third party manufacturers are located.
The protection by the Group of its intellectual property rights represents a significant cost tied
notably to the cost of obtaining and maintaining intellectual property rights and other related
payments. This cost could greatly increase if the group has to defend its intellectual property rights.
The Group may have to pursue court proceedings, potentially in more than one jurisdiction, to
enforce its intellectual property rights. Intellectual property litigation is typically costly and time-
consuming and its outcome is often unpredictable and, as such, even if the Group is successful in
defending its intellectual property, the costs incurred and the diversion of management time and
attention could have a material adverse effect on the Group’s business, results, prospects, or financial
condition. Any failure to defend its intellectual property rights could result in competitors having
access to the technologies developed by the Group both internally and could entail the loss by the
Group of a competitive advantage. Furthermore, the Group faces the risk that there may be patents
issued to third parties that relate to its proposed product applications and technology of which the
Group is not aware or that it must challenge in the courts to continue its operations as currently
contemplated and this could have a material adverse effect on the Group’s business, financial
condition, results or prospects.
8.2.3. Risks associated with litigations over intellectual property rights
The business of the Group means that it faces inherent risks with respect to intellectual property
infringement and product liability claims, each of which could materially adversely affect the Group’s
business, results, prospects or financial condition.
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The Group’s commercial success depends upon its ability, and the ability of any third party with
which it may partner, to develop, manufacture, market and sell its products and use its patent-
protected and non-patent-protected technologies without infringing the patents or rights of third
parties. The Group’s products may infringe, or may be alleged to infringe, existing patents or patents
that may be granted in the future. As a result, the Group may become party to, or threatened with,
proceedings or litigation regarding patents. If the Group is found to infringe a third party’s patent, the
Group could be required to obtain a license from such third party to continue developing and
marketing its products and technology or the Group may elect to enter into such a license in order to
settle litigation or in order to resolve disputes prior to litigation. However, the Group may not be able
to obtain any required license on commercially acceptable terms or at all. The Group could also be
forced, including by court order, to cease to develop or market products based on the infringing
technology or product and/or pay financial penalties. Any of these events could have a material
adverse effect on the Group’s business, financial condition, results of operations or prospects.
8.2.4. Risks related to defective products
The risk of defective products creating Group liability is inherent in the development, manufacturing,
marketing and sale of its products.
The Group could be held liable, as a manufacturer, because of damage caused by the failure of one of
its products.
A product is considered defective when it does not provide the safety which a person is entitled to
expect.
The Group may be found not to be responsible if it is shown that the state of scientific and technical
knowledge at the time the product was put into circulation was not able to detect the existence of
the defect or the product defect is due the compliance of the product with mandatory regulations or
compliance with law or regulation. More specifically, the exposure of the Group to such liability is
heightened because of the production, usage and storage of hydrogen by its products. Hydrogen is a
flammable gas and accordingly is potentially dangerous. In addition, acids and heavy metals
contained in the battery-based technologies integrated in the Hybrid Solutions deployed by the
Group can be toxic and potentially dangerous.
Any accident involving the Group’s products or other Hybrid Solutions could impact the demand for
products developed by the Group or substantially stop the general acceptance of such products. The
financial position of the Group, its results and prospects of the Group could be materially adversely
affected.
The Group’s reputation could also be affected by negative publicity resulting from difficulties or
accidents in connection with its products. The Group cannot guarantee that such claims will not be
made in the future.
8.2.5. Risks tied to the regulatory environment
The existing regulation for hydrogen installations, and in general Hybrid Solutions developed by the
Group is complex and specific depending on the activity performed (production, transport or storage
of hydrogen and lithium) and depending on the type of application (stationary, mobility and
portable). It is thus incumbent on the Group to identify European and national regulations applicable
to each product developed for its business and to meet the requirements. Despite the fact that the
Group has a Standards & Regulatory Assurance team (split between R&D and Engineering) dedicated
to monitoring and comply with certification, health and safety requirements, it could be adversely
affected by regulations not timely or properly identified or misinterpreted.
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In addition, the use of hydrogen and advance system integration technologies as an energy source
involves a technological breakthrough, the development of which may be hindered by existing
regulations not always suited to the technology. The regulatory environment imposes constraints
that may hinder the development of small electricity production units and thus the marketing of
certain products of the Group. It is possible that the regulatory environment can evolve so that the
installation of systems, such as those developed by the Group, on agricultural land may require, for
example, the prior granting of environmental permits. This mismatch between existing regulations
and current technological developments on hydrogen and energy storage generally raises
uncertainty about the future legal framework of the activity.
The products and technologies used by the Group are governed by numerous regulations including
environmental, health and safety that regulate not only their production but also their transport,
installation, distribution, and operation.
In general, non-compliance with laws, regulations, requirements or requests from competent
authorities in environmental, health and safety is likely to expose the Group to administrative
sanctions including civil, financial and/or criminal liabilities. In addition, the adoption or
implementation of new laws, regulations or government policies, or the formulation of specific
requests from the competent authorities or the loss of a vital approval for the operation of production
facilities could restrict Group development opportunities, its ability to continue production and/or
require significant investment. This would be so if the rules required that the installation of systems,
such as those developed by the Group are carried out by recognized entities preventing the Group
from producing, storing and installing hydrogen based systems.
The risks described above could materially adversely affect the business, financial position, results or
outlook.
8.2.6. Risks associated with environmental damages resulting from its research, development or
manufacturing operations, or usage, manufacturing and storage of highly combustible fuels and
gases
The Group’s business exposes it to the risk of harmful substances escaping into the environment,
resulting in personal injury damage to or destruction of property and natural resources. The Group’s
business is subject to numerous laws and regulations that govern environmental protection and
human health and safety. These laws and regulations have changed frequently in the past and it is
reasonable to expect additional and more stringent changes in the future. The Group’s operations
may not comply with future laws and regulations, and the Group may be required to make significant
unanticipated capital and operating expenditures in order to comply. If the Group fails to comply with
applicable environmental laws and regulations, governmental or administrative authorities may seek
to impose fines and penalties on it or to revoke or deny the issuance or renewal of operating permits
and third parties may seek damages from us. Under those circumstances, the Group might be
required to curtail or cease operations, conduct site remediation or other corrective action, or pay
substantial damages.
In addition, the Group may be held responsible for damages beyond the scope of its insurance
coverage and the Group’s current insurance policies may not adequately reimburse it for costs
incurred in settling environmental damage claims, and in some instances, it may not be reimbursed
at all. The Group also cannot predict whether it will be able to maintain insurance coverage on
acceptable terms. The occurrence of one of these risks could materially adversely affect the business,
financial position, results or outlook of the Group.
8.2.7. Risks associated with warranty claims
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The Group produces high technology systems and provides to its customers in the backup power
segment as a warranty period up to the lower between five years, 1,000 start and stop cycles and
15,000 operational hours and in the grid storage segment two to five years generally. The Group
manufactures the parts applying strict standards and tolerances using complex manufacturing
processes. Failures of the systems could give rise to substantial product warranty costs and claims
and significant in-house and on-field repairing costs. At present, the Group has not yet had to face
any material warranty claims. Accordingly it does not have a provision for warrantees in its accounts.
These costs are typically un-predictable and generally not insurable. The occurrence of one of these
risks could materially adversely affect the business, financial position, results or outlook of the Group.
8.3. Risks associated with the supply chain and operations
8.3.1. Risk of dependence on certain suppliers of raw materials or core components and certain sub-
contractor
The Group carries out all the research and development activities relating to all its products.
Furthermore, it manufactures, assemble or finalize the final specification of any core components -
such as the G2P module, the P2G module, the inverter, the master controllers, the wirings of any
Hybrid Systems – except for the battery based technology integrated in its Hybrid Solutions. The
Group relies on strategic partnerships for some part of its systems: in particular Johnson Matthey
manufactures the PEMs, Prima Electro (main industrial shareholder of EPS) the power and control
electronics and Elvi Elettrotecnica Vitali the BESS, PCs and controllers.
Furthermore the Group relies on third party suppliers to manufacture less critical components of its
systems. The largest supplier of the Group, the five principal suppliers and ten principal suppliers
respectively represent 16%, 42% and 50% of the purchases in 2015. The two largest suppliers of the
Group were Esys S.r.l. and Prima Electro S.p.A.
If a third party manufacturer were to breach its contractual commitments to supply the Group’s
products, the Group’s only redress may be to pursue the manufacturer in the courts for damages and
such an action could be time-consuming and costly, and, even if successful, may not adequately
compensate the Group for any loss of profit or loss of business opportunity.
Furthermore there are relatively few counterparties who have the necessary scale and skill set to
produce the core components of the Group’s products. Accordingly, if the Group needed to replace
one of the existing strategic manufacturers, there may be a limited number of alternatives and the
Group may not be able to secure commercially acceptable terms from an alternative manufacturer.
The failure to secure an alternative manufacturer on commercially acceptable terms (in particulart in
terms of delivery and manufaturing set-up times), or at all, could have a material adverse effect on
the Group’s business, financial condition, results of operations or prospects.
Lastly, a supplier’s failure to supply materials or components in a timely manner, or to supply
materials and components that meet the Group’s quality, quantity or cost requirements, or the
Group’s inability to obtain substitute sources for these materials and components in a timely manner
or on terms acceptable to it, could harm its ability to meet its contractual obligations to its customers
and could have a negative material adverse effect on the business of the Group, its financial situation,
the results of its operation and its outlook.
8.3.2. Risks associated with subcontracting the installation and maintenance of its systems to third
parties
The Group subcontracts a part of the maintenance and installation of its products to third parties. As
such, the Group relies on its suppliers in terms of quantity, quality, yield and costs of services and
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products. The Group cannot maintain the same level of oversight and control over these outsourced
operations as it would if these operations were carried out internally.
If one such third party fails to fulfil its obligations in a timely manner and in compliance with the
specifications, the Group may not be able to install and assure the maintenance of its products and
systems in a timely manner and at a sufficient quality which could have a material adverse impact on
the Group’s activity, financial situation. Its results and its prospects.
8.3.3. Risks associated with volatility or increases in raw material prices or availability of materials and
energy
The Group, its contract manufacturers and the companies within its supply chain, purchase platinum
typically used in electronic components, electrolytic cells and fuel cell stacks and battery based
technologies. Price increases with respect to raw materials, such as platinum, as well as batteries,
energy and services, such as transport, used in developing and manufacturing the Group’s products
that cannot be recovered by a corresponding price increase in the Group’s products and/or licensing
arrangements could have a material adverse effect on the Group’s business, financial condition,
results of operations and prospects. Also a shortage of certain primary materials necessary to the
production of the Group’s systems, such as platinum and lithium, could lead adapting the
components of the systems. Risks associated with manufacturing capacity which may not be
sufficient to fill all customer orders.
8.4. Financial Risks
8.4.1. Risks related to the Group's financial performance
The Group suffered losses each year up to the year ended December 31, 2015 (included). As part of its
development projects, the Group will be forced to incur more operational and capital expenditures in
the coming years. In order to become profitable, the Group will, among other things, succeed in
placing its systems in the target markets, while ensuring that their production costs and costs of
service throughout their life remain competitive with comparable systems and while maintaining
adequate margins. There is a risk that the Group will never become profitable and if it does become
profitable, it may not able to maintain or increase profitability in the future.
8.4.2. Risk related to the potential volatility of the Group's revenues in the coming years
The Group’s business depends in particular on the success of a limited number of tender offers and
RFPs, which the Group will wish to respond, but which individually can represent a very significant
amount compared to the historical sales of the Group.
Therefore, sales and Group operating results may vary significantly and unexpectedly from one
period to another, which could have a material adverse effect on its accounts, its financing ability and
its outlook.
8.4.3. Risks related to the sales cycle in the grid applications sector
The Group may enter into long-term contracts in the grid applications sector, whose sales cycle,
including a preparatory phase and an implementation phase may occur over several months. If
necessary, a number of events may occur during (i) the project preparation phase, such as the
questioning of the project, despite the length of the test phases, studies, efforts and funds pledged
by the Group, and (ii) the execution phase, such as technical problems relating to the components
supplied by third parties, delays of subcontractors, financial difficulties of users or partners, resulting
in an increase of costs or of losses.
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There could also be delays and lag between the conclusion of these contract, the recording in
revenues and the actual receipt of the amounts. Therefore, the Group’s revenues could experience a
significant time difference between payments and expenses, which could have a material adverse
effect on its cash, its financing capacity and prospects.
8.4.4. Risks associated with further funding in the future
The Group’s longer term liquidity and capital requirements are difficult to predict because they
depend on numerous factors, including the success of the Group’s products, the Group’s research and
development activities, relationships with third-party business partners, the impact of competing
technologies and market developments. Furthermore, the Group’s business plan must account for
differing revenue generating activities and capital investment programs, whilst also seeking to
ensure that the Group has the capability to respond to strategic opportunities that may arise within
its target markets. In response to or as a result of any one of, or a combination of, these factors, the
Group may need to incur additional capital or operating expenditure or accelerate planned capital
expenditure, and may therefore incur net cash outflows in excess of those anticipated in its business
plan such that it would be unable to meet its longer term working capital requirements, support
additional research and development or take advantage of strategic market opportunities without
raising additional financing.
The ability to secure any such additional financing will be subject to a number of factors, including the
Group’s operating performance and financial condition, as well as market conditions and other
factors beyond the control of the Group. These factors could also make the terms and conditions of
financing unattractive for the Group. The Group may not be able to raise additional funds when
needed and as a result its ability to successfully operate and grow its business and progress through
further stages of development could be materially adversely affected.
8.4.5. Risks associated with changes in exchange rates
The Group expects to be exposed to currency exchange rate risk. The Group financial statements are
prepared in euros, but a significant part of the Group’s business might be conducted in the future in
currencies other than Euro. Historically, the Group has carried on its business in euros, and will
continue to do so. However, the Group may sign future contracts under which payments are
expected to be made and received in US dollars or other currencies.
Through its US subsidiary, Electro Power Systems Inc., the Group also intends to carry on business in
the United States in US dollars. Therefore, the Group is exposed to exchange rate, conversion and
transaction costs. The risk associated with currency fluctuations occurs during the conversion into
euros of the value of assets and liabilities not denominated in euros, and the results of its subsidiaries
not denominated in euros. To the extent that the exchange rates of these currencies are exposed to
fluctuations, they are likely to affect the consolidated financial statements of the Group, which could
also have a significant effect on the Group’s financial position and its results, as represented in the
Group accounts. The risk related to foreign exchange rate changes may occur due to the difference in
exchange rates between the closing date of the commercial transaction and the date of settlement.
Currently, the Group’s exposure to foreign currency risk is not specifically hedged. In the future, the
Group may consider entering into hedging agreements.
8.4.6. Interest rate risk
The Group has no exposure to interest rates, to the extent that no bank debt or other financial
indebtedness has been set up to date by the Group.
Consequently, the Group believes it is not exposed to a significant risk of interest rate variation.
84
8.4.7. Credit and/or counterparty risks
Credit risk is the risk that a counterparty will not meet its obligation under a financial instrument or
customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating
activities (primarily for trade receivables) and from its financing activities, including deposits with
banks and foreign exchange transactions.
Customer credit risk is managed by business development department at each reporting date on an
individual basis for major clients. The maximum exposure to credit risk at the reporting date is the
carrying value of each class of financial assets disclosed in note 4.30 of the Consolidated Accounts of
EPS Manufacturing.
The Group does not hold counterparty insurance but the requirement for impairment is analysed at
each reporting date on an individual basis for major client (the calculation is based on actual incurred
historical data).
8.4.8.Liquidity risk
The liquidity risk represents the risk that the financial resources are not sufficient to fund the financial
and commercial obligations within the pre-established periods and due dates. The risk of liquidity to
which the Group is subject to may emerge from late payments on its sales and more generally from
the difficulty of obtaining financing to support operational activities in the time necessary.
The Group monitors its exposure to a risk of a shortage of funds using a recurring liquidity planning
tool.
The revenue stream of the past three years did not allow the Group to finance its own cash needs and
shareholders’ support has been material to keep the company a going concern.
The Group has proceeded to analyse and review its specific liquidity risksand it considers that it is
able to meet its obligations for the coming twelve months starting as of the date of this report.
8.4.9. Risks associated with shares and other financial instruments
At the date of this Management Report, the Group does not hold any direct or indirect interest in
listed or (except for the Group Companies) unlisted companies, and therefore does not bear, as such,
risk on shares.
8.4.10. Dilution risk
(xxix) Risk connected to a future capital increase
It is possible that the Company decide to carry out increases in capital in the future. All major
share issuances in the future that do not give preference to shareholder underwriters, might
lead to a significant dilution of the Company shareholders.
(xxx) Risk connected to the diluting effect of incentive programs
The company decided to put into place Options and Warrants in favour of the managers,
directors, employees, former employees and founders, and consultants belonging to the
Company and EPS Manufacturing. These instruments were authorized by the shareholders
of the Company on 16 February 2015. The options and the Warrants were allocated in first
instance by the Board of Directors Meeting on 6 March 2015, in second instance by the
Board of Directors Meeting held on 21 April 2015 and in third instance by the Board of
Directors Meeting held on 26 November 2015. The remaining 160,637 Options and 574,227
Warrants will be allocated by the Board of Directors, who will set the related price in
85
accordance with the rules set by the shareholders’ meeting of the Company held on 16
February 2015.
If these financial instruments were exercised it would result in 1,292,136 new shares,
corresponding to a maximum dilution of about 13.93% of the existing capital on a fully
diluted basis, that is to say taking into account the theoretical exercise of all of the Options
and Warrants which have been allocated. The dilution of the voting right is identical, at
13.93%.
The exercising of Options and Warrants that are offered and in circulation, providing access
to the Company’s capital and all subsequent offerings or attributions could lead to a
significant dilution of the interest of the Company’s managers.
8.5. Risks related to the Company and the organization of the Group
8.5.1. Risks related to the holding company structure
The Company is a holding company that to date has not generated its own revenues and whose main
assets consist in its direct or indirect interests in its subsidiaries, including its subsidiary EPS
Manufacturing and Elvi Energy, which respectively generates and will generate most of the Group’s
financial flows. The core assets of the Group’s business, including intellectual property and material
contracts for the activity and the Group’s development are held by EPS Manufacturing and Elvi
Energy. The capacity for the latters to make payments in favour of the Company depends on
economic, commercial and contractual considerations and legal constraints that may be applicable.
Therefore, the Group can not guarantee that the profitability or results of the operating subsidiaries
will allow financial flows to the Company sufficient to cover future payments of any dividend to its
shareholders.
8.5.2. Risk of not being able to manage growth and production growth
The Group’s future operational results mainly depend on its ability to successfully manage its
development and growth. In order to manage its growth efficiently, the Group will have to further:
(i) recruit new sales executive and open new offices/subsidiaries;
(ii) establishing and implementing a marketing strategy;
(iii) recruit accounting and financial staff;
(iv) improve its administrative, financial and operating systems, as well as its internal control
processes; and
(v) improve the Group’s IT system for integrated management and design by adapting and
expanding the capacity and tools of the IT system and improving the training of new
employees in the use of its IT system, particularly following the Elvi Energy acquisition.
In order to remain competitive and manage its expansion, the Group must also constantly improve its
equipment and technologies and deploy significant efforts in terms of research and development,
requiring not only significant investments in this area, but also investments in sales and marketing.
The Group could also be forced to make significant investments before some of the benefits
expected from them can be attained. The return on investment could either be lower, or achieved
more slowly than expected, or not materialize at all, which could negatively affect the Group’s results
and prospects.
Should the Group be particularly successful in its commercial development (in particular in the grid
scale segment) and should the Group be able to sell on a worldwide basis a significant number of
systems it could suffer, in a first leg of the expansion phase, of product quality issues (due to the
86
necessity of accelerating the manufacturing processes) and may not be able of providing high-level
after sales service due to the lack of qualified employees and trained partners. If the Group is unable
to efficiently manage its growth, it could be unable to take advantage of market opportunities or to
develop the products the market is expecting, it could fail to maintain the quality of its systems and
be unable to execute its business plan. Any of these events, if they were to materialize, would have a
material adverse impact on the Group, its business activities, financial condition, results or prospects
and development.
8.5.3. Risk of dependence on key managers and employees
The Group’s success depends to a large extent on the performance and expertise of its senior
managers and its key scientific and industrial personnel, and in particular on the Chief Executive
Officer of the Group, Carlalberto Guglielminotti.
Most of the Group’s senior executives have built up extensive technical and scientific experience
throughout their academic and professional careers.
If any such employees leave the Group, this could result in a loss of know-how which would weaken
certain business lines, especially if the employee joins a competitor, as well as gaps in the range of
technical skills that could slow down operations and might adversely affect the Company’s ability to
achieve its objectives in the long term.
To date, the Group has taken out a so-called “key person” insurance policy (covering permanent
disability and/or death).
In view of this risk, the Company has put in place staff motivation and loyalty systems including, in
particular, a remuneration package and growth schemes based on performance and a share
subscription warrant plan and share options. In order to limit this risk, the Company intends to beef up
this incentive scheme in the future.
8.5.4. Risk of not being able to attract and retain qualified employees
The success of the Group and its business strategy are dependent on its ability to attract and retain
key management, commercial and technical personnel, including those with engineering expertise.
As a result of recent improvements in economic sentiment and the relative scarcity of qualified
electrical engineers in Turin and electrical and system engineers in Milan (where the Group has its
principal research facilities for the vertical integration), the level of competition for the services of
qualified engineers is high which may hinder the Group’s recruitment efforts, lead to higher than
planned staff attrition and/or lead to increased personnel costs. As the Group’s business grows, it will
continue to recruit additional commercial and technical personnel with the appropriate skills to
support the Group’s development. This is particularly relevant for the business development
operations that have to be built in countries where the Group is not currently present, but envisages
the necessity to open a subsidiary or an office. In addition, as the Group continues to commercialize
its technology and expand its partner relationships, the Group will seek to retain and incentivize
existing key personnel in order to achieve its business objectives. It may, however, face difficulties in
doing so because of factors such as the growth in the number of companies operating in the energy
industry, and in particular the risk of current or future competitors recruiting the Group’s personnel,
or the increasing requirements for personnel with the requisite skill sets in complementary industries.
This could result in the Group losing personnel with knowledge of its technology or the skills needed
to commercialize this technology, or being unable to procure adequate replacements for such
personnel. This could have a material adverse effect on the Group’s business, financial condition,
results or prospects.
87
8.6. Contingent Liabilities
8.6.1. Risk related to the revocation of previously granted public subsidies
In pursuit of its new completely unsubsidized business model, the amount of subsidies has been
reduced to Euro 265,000 in 2015, while during the financial years 2012, 2013 and 2014, EPS received a
total amount of 1.5 million euros of subsidies. Despite the new unsubsidized strategy, the Group
advocates the importance to participate and eventually lead international research projects the
proceeds of which can be accounted or registered as subsidies. In that respect, it is important to note
that there may be significant delays between the granting of these subsidies, their registration,
recording as income and actual receipt.
The Group has limited control over these delays.
According to the different tender offer rules, there is a risk of revocation of approximately 3.2 million
euros taking into account all of the subsidies received by the Group since its formation. This risk
relates to potential financial and technical audits conducted by the authorities, which may take place
within the five years following the end of the project. It is important to highlight the fact that several
financial and technical audits have already been conducted by the relevant authorities (for example,
Piedmont region (Italy), the Aosta Valley region (Italy), and “FCH2JU”) before and after payment of
the subsidies. The mentioned risk relates to potential ex-post audits which would be aimed at
verifying the overall implementation of the project.
An ex-post audit was conducted in October-November 2014, for alleged irregularities that would
have been committed over the July 2011 to May 2014 period in connection with the receipt of a
186.278,26 Euros grant in July 2011, in relation to a research project named “HyFCair”. The amount in
dispute was around 35,000 Euros.
Finpiemonte (the administrative authority of Piedmont region, Italy) brought an administrative
lawsuit against EPS for the partial revocation of the previously granted subsidies. This lawsuit was
stictly connected with the 231 investigation started by the Public prosecutor before Aosta Court.
EPS appointed KPMG for an independent audit, that hilightened the substantial fairness in the
Company’s conduct, reporting and accounting methods.After the release of their opinion for the
proceeding the public prosecutor decided to request the competent judge the dismissal of all charges
against EPS and the Judge for the Preliminary Investigation, on 3rd February 2016, decided to
terminate the aforementioned proceeding. The Group has sent to Finpiemonte on the 12th February
copy of the Public Prosecutor’s request and Judge’s decision and is still waiting for the denifition of
the administrative proceeding having as object the partial revocation of the financial subsidies.
In addition, the revocation risk may result from the closing, or the relocation of the business unit
having received the subsidy within the five years following the end of the project. In accordance with
this rule, 1.6 million out of 3.2 million Euros are likely to be revoked if the offices located respectively
in the Piedmont (Italy) and the Aosta Valley region (Italy) were to close. These situations are likely to
have a material adverse effect on the Group’s business, financial condition, results of operations or
prospects.
Management actions taken by the Group to reduce the potential consequences of the risk of
revocation of subsidies are under development have been implemented through its internal control
and risk management procedures and its Organizational, Management and Control Model described
in section 5 of the Report of the Chairman on the Internal Control Process.
8.6.2. Tax Risks
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The Company has been incorporated in 2014 and, since then, it has been active as holding of the
Group. Several investments have been made – directly and indirectly - by the Company in Italy and
abroad pursuant to the strategy developed by its Board of Directors. Although the Group Companies
are predominantly located in Italy so far, the Company envisages a continuous worldwide expansion
in terms of networking and clients. USA will shortly become an important and driving market
together with other major IP intensive field.
Despite the fact that the Company is currently in between Italian resident shareholders and Italian
assets such as the investment held in EPS Manufacturing and, hence, the risk of being identified as
Italian taxpayer cannot be excluded until December 31st 2015, the Board of Directors believes that
the Company has been actually and effectively managed from France so far. This is, in the opinion of
the Board of Directors, particularly evident from the fact that the Group in 2015 held 16 Board of
Directors’ meetings, lasted on average 3 hours and 30 minutes and with an attendance rate of
approximately 92%, 14 of which have been in Paris, and just 2 of them via conference call (please see
section 2.9 of the Report of the Chairman on the Internal Control Process).
In addition, the Company did not cause any events – such as disposal of investments or dividends
upstream - that may trigger material taxes to be paid both in Italy and in France. A precise
commitment has been assumed by the Group’s management to analyze and proceed with a
corporate Group reorganization in order to disperse any uncertainty and fixed any potential, though
remote, concerns deriving from different interpretation of current set of tax rules either in Italy or in
France potentially affecting the place of effective management.
8.6.3. Risks associated with pending litigation
As mentioned in paragraph 4.6.1. above, an ex-post audit was conducted in October-November 2015,
yet, authorities alleged irregularities connected with the receipt of a 186,278.26 Euros grant in July
2011, for an amount of around 35,000 Euros.
EPS appointed KPMG for an independent audit, and after the release of their opinion and the filing of
a memorandum by EPS’ lawyers, the 231 proceeding was dismissed. Instead is still pending the
administrative lawsuit against Finpiemonte for the partial revocation of the previously granted
subsidies, for the overmentioned amount of 35,000 euros and the application of a penalty between
6,000 and 60,000 euros.
8.7. Risk Insurance and coverage
There is a risk that the Group’s insurance policies may not be adequate. However, The Group has
implemented a coverage policy for the main insurable risks with a guaranteed upper limit that the
Group considers consistent with its activities and the volume of its actual business. The insurance
policies taken so far by the Group are detailed in the table below:
Policy Underwriter Risk Coverage Principal Characteristics Expiry
Theft Insurance AXA Rivoli Facility and Aosta Facility Contents and goods included
Upperlimit guaranteed Rivoli Facility goods and contenents 0,1M Aosta Facility goods and contenents 0,01M
31/12/2016
Fire Insurance AXA
Rivoli Facility Milano Premises Aosta Facility contents and goods included
Upperlimit Guaranteed: Rivoli facility: 3,5M Milano premises: 0,17M Aosta Facility: 0,85M
31/12/2016
Product Liability AXA Damages caused to property and persons from product defects
Upperlimit Guaranteed 5M 31/12/2016
Liability Insurance for workers and third party
AXA
Protection for damage caused to third parties and to the employees for acts that incur during business activities
Upperlimit Guaranteed: 16,9 M 31/12/2016
D&O Insurance W.R.Berkley Financial protection for Directors and Officers against the consequences of
Upper limit guaranteed 5M€ Unlimited retroactivity
01/01/2017
89
actual or alleged “wrongful acts”. Extended worldwide
Professional and Extra-Professional CEO Insurance
AIG Contract of casualty insurance for death and permanent disability risks
Upper limit guaranteed on death case 0.5 M € Upper limit guaranteed on permanent disability 0.6 M €
31/12/2016
Health Insurance Previline Health Insurance Fund
Reimbursement of Medical Costs Insurance for Employees and Directors
31/12/2016
Keyman Insurance Zurich
Financial protection for losses that would arise from the death or extended incapacity of an important member of the business.
Activated for three directors of the Group Giuseppe Artizzu Carlalberto Guglielminotti Fabio Magnani Upper limit guaranteed per each director 0,5 M
31/12/2016
Company vehicles insurance
Zurich, Toro Alleanza, Itas Mutua,Ace
Vehicles of the Group Fire, Theft, Robbery, Accidental Damages, Assistance
Mercedes Sprinter: 30/06/2016 (Generali Toro) Fiat Scudo: 15/07/2016 (Itas Mutua) ACE: Driver’s Insurance until 30/06/2016
Missions CHUBB International business travel insurance
Insurance for the employees and the CEO
19/03/2016
Governance of the Group and corporate officers
The Company is incorporated in the form of a limited liability company with a Board of Directors. A
descriptive summary of the principal stipulations of the articles of association of the Company and of the
internal regulations relating to specialized committees, will appear in Chapters 16 “Board Practices” and 21
“Additional Information” of the Group’s Registration Document that will be published by 30 April 2016.
9.1. Board of Directors
On the date of this Annual Report the Board of Directors consists of 6 men and 2 women. Among the 8
members of the Board of Directors, 7 are foreign nationals. The Company has the objective of ensuring that
the choice of members of its Board of Directors provides for a diversity of skills from its members, and has a
balanced representation of men and women, in accordance with the applicable legal requirements.
The Board of Directors of Electro Power Systems is composed by:
1. Emanuela Banfi
2. Sonia Levy-Odier
3. Davide Peiretti
4. Massimo Prelz Oltramonti
5. Giuseppe Artizzu
6. Carlalberto Guglielminotti
7. Cesare Maifredi
9.2. Corporate Officers, profile, offices held and duties assumed
Emanuela Banfi
Director and Member of Audit Committee
Independent: SI
Born in Milan, on Jan 20th 1969
Married with 1 child
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Residence: Italy
Education
- BS with honours in business administration from Bocconi University in Milan
- Participant in the exchange programme with the Rensselaer Polytechnic Institute (Troy, New
York) and the University of Western Ontario (Ontario, Canada).
Business Address:
Via, Marghera 45, Milan, Italy
Options and Shares:
Number of EPS shares held: 2,667
Number of options or warrants held: 106,492 BSA 2015-1
Background
After having spent four years as an Associate in Arthur Andersen’s Corporate Finance division,
Emanuela Banfi spent two years as investment manager with Fidia S.p.A., a management company
held by Mediobanca. From 2000 to 2005, Emanuela Banfi held the position of Executive Director with
Lehman Brothers in London within the capital markets department, originating and structuring key
transactions, both for financial institutions and corporates. Between 2006 and 2013, Emanuela Banfi
was Managing Director at Société Générale in Milan, in charge of a portfolio of corporate clients.
Currently she is senior banker at Natixis in the Corporate Coverage department. She was appointed
director of EPS Italy on 19 September 2014 and currently is Director of EPS SA. She also serves as
Chairwoman of the non-profit Foundation Varenna and as Independent Director of Nice Spa, a
company listed on the Star, Milan. She is a chartered accountant and statutory auditor.
Other positions and corporate offices held
- Board member: EPS SA, Nice Spa
- Associations: Fondazione Varenna
Other positions and corporate offices held within the past five years but no longer held
- Advisor in charge of Corporates and Holdings with Phinance Partners
- Managing Director with Société Générale
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Sonia Levy-Odier
Director and member of the Audit Committee
Independent: Yes
Born 06/27/1967
2 children
Residence: France
Education
- Holds a degree of ESSEC, and one of the Training Centre of the SFAF (Société Française des
Analystes Financiers).
Business Address:
6 avenue Daniel Lesueur – 75007 PARIS
Options and Shares:
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Number of EPS shares held: 0
Numeber of options or warrants held: 13.147
Background
Sonia Levy-Odier began her career at Archimedia, an investment fund specialising in media and
communication. She has over 20 years’ experience in finance, specifically with investment funds
(Archimedia, Aster & Associes), specialist media and communication (Capital Media, Media
Publications, Cimarosa Communications). She currently holds the position of General Secretary of
Euro Forma Dis, the leading French company in training at a distance. She is currently a member of
the Training and Communication Committee of the Société d’Encouragement pour l’Industrie
Nationale.
Other positions and corporate offices held
- Board member: /
- Executive: EURO FORMA DIS
- Associations: Société D’Encouragement pour l’Industrie Nationale
Other positions and corporate offices held within the past five years but no longer held
- Board member: JOB & CO
- Executive: JOB & CO
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Davide Peiretti
Director and member of the Remuneration Committee
Independent: NO
Born 23/10/1977
2 children
Residence: Italy
Education
- Executive MBA with ESCP Europe
- Graduate in Finance from the Faculty of Economics of the University of Torino.
Business Address:
Via Pancalieri 6 OSASIO, Torino, Italy
Options and Shares:
Number of EPS shares held: 5
Number of options or warrants held: 106.492
Background
Davide Peiretti began his career with KPMG as a consultant. He worked there for almost 7 years,
gaining experience in company financing, strategy and team management. In 2008, he joined the
Prima Industrie Group and currently holds the positions of Finance Director and Deputy Chairman of
Prima Electro S.p.A., and is a member of the strategic committee. He was a member of the board of
directors of Prima Electro North America and is currently a board member of OSAI UK and Prima
Electro China. On 19 September 2014, he was appointed director of EPS Italy.
Other positions and corporate offices held
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None
Other positions and corporate offices held within the past five years but no longer held
- Board member: Member of the board of directors of Prima Electro North America; Member of
the board of directors of Caretek S.r.l.
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Massimo Prelz Oltramonti
Director and
member of the Remuneration Committee and
member of the Audit Committee
Independent: yes
Born 15/11/1954
3 children
Residence: United Kingdom
Education
- M.B.A. from Wharton School at the University of Pennsylvania
- “Licence” (B.A.) in management from the University of Geneva
Business Address:
2 Rosslyn Hill, London NW3 1PH, United Kingdom
Options and Shares:
Number of EPS shares held: 62,945
Number of options or warrants held: 32,868
Background
Massimo Prelz Oltramonti began his career in strategic consultancy with the Boston Consulting
Group in Paris. He then joined Olivetti, where he worked first in Corporate Development (external
growth and venture capital), both in the United States and in Europe, then as Managing Director of
the Financial Information Services division (Radiocor s.r.l.). He returned to the venture capital sector
with Alta Berkley Associates in London, before turning to private equity, firstly with Advent
International, then with Spectrum Equity and later with GMT Communication Partners. He held the
positions of chairman of the Board of Directors of Jazztel Plc, of Deputy Chairman of Primacom AG
and of member of the board of directors of a number of listed companies, including ESAT Telecom,
SBS SA, Edap-Technomed SA, Esaote SpA, and Cityfibre Holding plc. He is also chairman of the
investment committee of the venture capital fund DN Capital and director of Gigaclear plc (UK).
Massimo Prelz Oltramonti is also a director of EPS Italy.
Other positions and corporate offices held
- Board member: Gigaclear plc
- Advisory board member: DN Capital, Docu group gmbh
- Executive: n.a.
- Associations: n.a
Other positions and corporate offices held within the past five years but no longer held
- Board member: Melita plc and related companies, Bigpoint gmbh, Asiakastieto AS
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- Executive: GMT Communication Partners
- Associations: n.a.
Compensation paid by EPS Group during 2015: €30,000 (€10,000 EPS S.A. and €20,000 EPS SpA)
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Giuseppe Artizzu
Director and member of the Executive Committee
Independent: NO
Born 8 September 1973
2 children
Residence: Italy
Education
- Laurea in Economics and Finance from the University of Bologna.
Business Address:
Piazza del Tricolore 4, 20129 Milano
Options and Shares:
Number of EPS shares held: 0
Number of options: 143.840
Background
Executive Director, Global Energy Strategy, degree cum laudae in economics and finance. He spent
his entire career focusing on the global energy markets, of which ten years with Lehman Brothers in
London, Milan and Rome, as an energy specialist. He was responsible for the utilities sector in
Southern Europe and coordinated the bank’s corporate finance activities in the European renewable
energy field. Thereafter, he focused on the development of greenfield renewable energy projects in
Italy. Giuseppe is a visiting professor at Politecnico di Milano, and a member of the board of the Ridef
Master Course in renewable energy and energy efficiency.
He also maintains a blog on energy-related questions for the Huffington Post and is an occasional
contributor to the specialist reviews Qualenergia, Staffetta Quotidiana and Quotidiano Energia.
Other positions and corporate offices held
- Board member: Cautha S.r.l.
- Executive: YES
Other positions and corporate offices held within the past five years but no longer held
None
-------------------------------------------------------------------------------------------- -----------
Carlalberto Guglielminotti
Director and member of the Executive Committee
Independent: NO
Born 03/03/1983
1 Children
94
Residence: Italy
Education
- MBA with honours from the Bocconi School of Management in Milan, on financial risk
management
- JD with honours for his thesis on energy and the Kyoto protocol, also published in the European
Law and Policy Review in 2007, graduating with honours from the University of Torino
- Graduate with honours from the Université Paris Descartes in Paris.
- Specialist studies at the University of Haifa (Israel) and at the European School of Economics
(New York)
Business Address:
Piazza del Tricolore 4, 20129 Milan, Italy
Options and Shares:
Number of EPS shares held: 5
Numeber of options or warrants held: 450.948
Background
Carlalberto Guglielminotti has more than nine years’ experience in the high-technology, energy and
digital sectors. He was Operational Partner of 360 Capital Partners, a venture capital investment
fund, specialising in selection of investments, technologies and management of the companies in the
fund’s portfolio. Since 2011, he has been a non-executive Chairman of 360 Capital Partner Italia S.r.l.
Carlalberto Guglielminotti was the joint founder of two start-ups (Blackshape Aircraft and Restopolis
(now, The Fork)), and has been a board member of various companies, notably, Eataly Net S.r.l. and
Musement S.r.l., concentrating on the commercial and strategic development of the companies.
Prior to this, he spent more than four years as an Associate with Linklaters LLP, on secondment to
the Royal Bank of Scotland, specialising in LBOs, mergers and acquisitions, industrial and financial
refinancing and structured financing transactions in the sectors of renewable energies, wind power
and photovoltaic energy.
Other positions and corporate offices held
- Board member:
- Executive: CEO of 360 Italia S.r.l., director at 360 Capital Partners S.A.S.
Other positions and corporate offices held within the past five years but no longer held
- Board member: Member of the board of directors of Eataly Net S.r.l. and Musement S.r.l.
- Executive: Operational Partner of 360 Capital Partners
Co-founder and director of Blackshape Aircraft and Restopolis (today The Fork)
-------------------------------------------------------------------------------------------------------
CESARE MAIFREDI
Director and member of the Remuneration Committee
Independent: NO
Born 06/07/1975
No children
Residence: Italy
Education
95
- M.B.A. from Darden School of Business Administration of the University of Virginia (2006)
- Master’s degrees in Industrial Engineering in 2004 and Mechanical Engineering in 1999 from the
University of Brescia, Italy.
Business Address:
Via Brisa 3, 20123 Milan, Italy
Options and Shares:
Number of EPS shares held: 1.500
Number of options or warrants held: None
Background
He joined 360 Capital Partners, a pan-European venture capital fund with more than 300Mio in
investments under management, in 2010 as investment manager and became general partner in 2012.
Currently holds board positions in 8 companies operating in the digital, energy and medical devices
sectors. Prior to joining 360 Capital Partners he was Senior Engagement Manager in the Houston of
McKinsey & Company where he gained extensive experience in cleantech, renewable energy, energy
efficiency and storage, low carbon technologies, water conservation, power generation, upstream oil
and gas with particular focus on investment selection, deal structuring, strategic and business
planning, business development and policymaking. Before that we was as a Project Manager at A2A
SpA, a leading Italian multi-utility.
Other positions and corporate offices held
- Board member: Dove Conviene srl, Musement srl, Eatalynet srl, Jobdisabili srl, CharityStars srl,
Thereson SpA, BeMyEye srl
- Executive: CEO of 360 Italia S.r.l., General Parner at 360 Capital Partners S.A.S.
- Associations: ItaliaStartup
Other positions and corporate offices held within the past five years but no longer held
- Board member: Newlisi SpA, NSE Industry SpA
- Executive: None
- Associations: None
9.3. Group remuneration and benefits to corporate officers
The table below presents a summary of the remuneration (for further information please refer to
paragraph 2.1 of the "Chairman Report") paid by EPS Manufacturing to Mr. Carlalberto
Guglielminotti, managing director of EPS Manufacturing since 14 November 2013. Carlalberto
Guglielminotti is bound by a directorship agreement signed by both EPS Manufacturing and the
Company. He is Chief Executive Officer of the Company and all Group Companies.
96
2013 2014 2015
(€)
Carlalberto Guglielminotti, Managing Director
Remunerations due during the financial year ................................
37,889 173,149 140,000
Due(1) Paid(2) Due(1) Paid(2) Due(1) Paid(1)
Fixed remuneration ....................... 37,889 28,722 103,149 112,316 130,000 130,000
Variable remuneration ................... 0 0 0 0 0 0
Multi-year variable remuneration ... 0 0 0 0 0 0
Exceptional remuneration ............. 0 0 70,000(4) 0 0 70,000
Attendance fees ............................ 0 0 0 0 10,000 10,000
Benefits in kind (3) ............................................ 0 0 0 0 0 0
TOTAL ..................................... 37,889 28,722 173,149 112,316 140,000 210,000
(1) for the financial year
(2) during the financial year
(3) car, etc.
(4) exceptional compensation tied to the financial reestablishment of the company in 2013.
97
The table below presents a summary of the remuneration paid by the Company to Mr. Luca Dal Fabbro,
chairman of the Board of Directors of the Company since 16 February 2015.
2013 2014 2015
(€)
Luca Dal Fabbro,
Chairman of the Board of Directors (up to April 8th 2016)
Remunerations due during the financial year ................................
0 0 10,000
Due(1) Paid(2) Due(1) Paid(2)) Due(1) Paid(2)
Fixed remuneration ....................... 0 0 0 0 0 0
Variable remuneration ................... 0 0 0 0 0 0
Multi-year variable remuneration ................................
0 0 0 0 0 0
Exceptional remuneration.............. 0 0 0 0 0 0
Attendance fees ............................ 0 0 0 0 10,000 10,000
Benefits in kind (1) ............................................ 0 0 0 0 0 0
TOTAL ..................................... 0 0 0 0 10,000 10,000
(1) for the financial year
(2) during the financial year
(3) car, etc.
98
The table below presents a summary of the remuneration paid by the Company to Mr. Prelz Oltramonti, chairman of the Board of Directors of the Company since 8 April 2016.
2013 2014 2015
(€)
Massimo Prelz Oltramonti,
Chairman of the Board of Directors
Remunerations due during the financial year ................................
0 0 30,000
Due(1) Paid(2) Due(1) Paid(2)) Due(1) Paid(2)
Fixed remuneration ....................... 0 0 0 0 0 0
Variable remuneration ................... 0 0 0 0 0 0
Multi-year variable remuneration ................................
0 0 0 0 0 0
Exceptional remuneration.............. 0 0 0 0 0 0
Attendance fees ............................ 0 0 0 0 30,00040 30,000
Benefits in kind (1) ............................................ 0 0 0 0 0 0
TOTAL ..................................... 0 0 0 0 30,000 30,000
(1) for the financial year
(2) during the financial year
(3) car
The table below presents a summary of the remuneration and benefits granted to the members of the
management of the Company (dirigeants mandataires sociaux):
40 10,000 were allocated as attendance fees (presence des jetton) as member of Board of Directors for Electro Power Systems S.A. and 20,000 as attendance fees as member of Board of Directors for Electro Power Systems Manufacturing S.r.l.
99
2014 2015
Massimo Prelz
Oltramonti
(Chairman of the
Board of Directors)
Remuneration due
annually
0 30,000
Pluri-annual variable
compensation
decided during the
financial year
0 0
Valorization of
warrants granted
during the financial
year
0 115,469.39
Valorization of bonus
shares granted
during the financial
year
N/A N/A
TOTAL 0 145,469.39
2014 2015
Luca Dal Fabbro
(member of the Board
of Directors up to
April 8th 2016)
Remuneration due
annually
0 10,000
Pluri-annual variable
compensation
decided during the
financial year
0 0
Valorization of stock
options granted
during the financial
year
0 871,563
Valorization of bonus
shares granted
during the financial
year
N/A N/A
TOTAL 0 881,563
Carlalberto
Guglielminotti
Remuneration due
annually41
173,149 140,000
Pluri-annual variable
compensation
0 0
41 Detailed in table n°2 below.
100
decided during the
financial year42
Valorization of stock
options granted
during the financial
year43
0 2,730,157
Valorization of bonus
shares granted
during the financial
year
N/A N/A
TOTAL 173,149 2,870,157
42 Pluriannual variable remuneration granted to the corporate officer during the financial year but which are not definitely due yet (in the event
of performance criteria for instance, when the final amount which may be due is still unknown). 43 Detailed in table n°4 below.
101
The table below presents remuneration and benefits paid to the members of the Board of Directors:
2014 2015
Luca Dal Fabbro (Chairman of the Board
of Directors up to April 8th 2016)
Attendance Fees 0 10,000
Other remuneration 0 0
Carlalberto Guglielminotti
Attendance Fees 0 10,000
Other remuneration 173,149 130,000
Davide Peiretti
Attendance Fees 5,000 25,000
Other remuneration 30,000 0
Emanuela Banfi
Attendance Fees 5,000 10,000
Other remuneration 50,000 0
Giuseppe Artizzu
Attendance Fees 0 10,000
Other remuneration 0 102,066
Sonia Levy Odier
Attendance Fees 0 10,000
Other remuneration 0 0
Cesare Maifredi
Attendance Fees 0 10,000
Other remuneration 0 0
Massimo Prelz Oltramonti (Chairman of
the Board of Directors)
Attendance Fees 0 30,000
Other remuneration 0 0
TOTAL 263,149 347,066
102
The tables below present a summary of the equity instruments allocated to and exercised by the
management of the Company (dirgeants mandataires sociaux) during the year.
Options to suscribe or purchase shares allocated in 2015 to the executive corporate officers (dirigeants mandataires sociaux)
during the year
Date of the stock
option plan
Type of instrumen
t
Valorization of the
instrument
Number of instrumen
ts allocated
during the year
Exercise price
Exercise Period
Luca Dal Fabbro,
plan n°1 6 March 2015
BSA 756,093 106,492 0.20 5 years
plan n°2 21 April 2015
BSA 115,469 32,868 5.11 5 years44
plan n°3 26 November
2015
0 0 0 0 0
Massimo Prelz Oltramonti,
Chairman of the Board of Directors
plan n°1 6 March 2015
BSA 0 0 0.20 5 years
plan n°2 21 April 2015
BSA 115,469 32,868 5.11 5 years
plan n°3 26 November
2015
0 0 0 0 0
Carlalberto Guglielminotti, Managing Director
plan n°1 6 March 2015
SO 2,268,280 319,.476 0.20 5 years
plan n°2 21 April 2015
SO 461,878 131,472 5.11 5 years
plan n°3 26 November
2015
0 0 0 0 0
Davide Peiretti,
Director
plan n°1 6 March 2015
BSA 756,093 106,492 0.20 5 years
44 The issued BSA of 21st April 2015 are exercisable as follows: 37.5% of the BSA 2015-2 become exercisable after an 18 months’ period from the date of grant through 21 April 2015 to 20 October 2016 inclusive; the remaining BSA 2015-2 become exercisable, by tranche of 6.5%, every quarter during the following period of two years and half. Consequently, all the BSA can be exercised fully for a 5 years’ period (up until 20 April 2024) after they have become 100% exercisable after a 4 years’ period.
103
plan n°2 21 April 2015
BSA 0 0 5.11 5 years
plan n°3 26 November
2015
0 0 0 0 0
Emanuela Banfi,
Director
plan n°1 6 March 2015
BSA 756,093 106,492 0.20 5 years
plan n°2 21 April 2015
BSA 0 0 5.11 5 years
plan n°3 26 November
2015
0 0 0 0 0
Giuseppe Artizzu,
Director
plan n°1 6 March 2015
0 0 0 0.20 5 years
plan n°2 21 April 2015
SO 346,408 96,604 5.11 5 years
plan n°3 26 November
2015
0 0 0 0 0
Sonia Levy Odier,
Director
plan n°1 6 March 2015
BSA 0 0 0.20 5 years
plan n°2 21 April 2015
BSA 46,187 13,147 5.11 5 years6
plan n°3 26 November
2015
0 0 0 0 0
Cesare Maifredi,
Director
plan n°1 6 March 2015
BSA 0 0 0.20 5 years
plan n°2 21 April 2015
BSA 0 0 5.11 5 years
plan n°3 26 November
2015
0 0 0 0 0
104
Options to suscribe or purchase shares exercised in 2015 by the executive corporate officers (dirigeants mandataires sociaux)
during the year
Date of the stock option plan
Number of instruments exercised
during the year
Exercise price
Luca Dal Fabbro,
Chairman of the Board of Directors (up to April 8th 2016)
plan n°1 6 March 2015
0 0
plan n°2 21 April 2015
0 0
plan n°3 26 November 2015
0 0
Carlalberto Guglielminotti, Managing Director
plan n°1 6 March 2015
0 0
plan n°2 21 April 2015
0 0
plan n°3 26 November 2015
0 0
The table below presents the history of allocation of equity instruments to Company officers.
Historic of allocation of stock options
Date of General Meeting Stock option plan n°1 16 February 2015
Stock option plan n°2 16 February 2015
Stock option plan n°3 16 February 2015
Date of Board Meeting 6 March 2015 21 April 2015 26 November 2015
Total of number of shares to be subscribed
349,058 331,965 166,340
Number of shares to be subscribed by members of the Board
319,476 230,076 45,236
Directors concerned: 1 2 1
Giuseppe Artizzu 0 98,604 45,236
Carlalberto Guglielminotti 319,476 131,472 0
Starting date of the exercise period
6 March 2016 20 October 2016 25 May 2017
Expiration date 6 March 2021 20 April 2024 20 November 2024
Subscription price 0.20 5.11 5.81
Exercise terms 45 46 47
Number of shares subscribed as at 31/12/15
0 0 0
45 The Options are not exercisable during a one (1) year period from the date of grant through 6 March 2015 to 5 March 2016 inclusive. The Options are not transferable, except in the event of death of a beneficiary. 46 The Options are exercisable as follows:37.5% of the Options become exercisable after an 18 months’ period from the date of grant through 21 April 2015 to 20 October 2016 inclusive; the remaining Options become exercisable, by tranche of 6.5%, every quarter during the following period of two years and half. Consequently, all the options can be exercised fully for a 5 years’ period (up until 20 Apr il 2024) after they have become 100% exercisable after a 4 years’ period. Options not exercised at the end of this period will be void. The Options are not transferable, except in the event of death of a beneficiary. 47 The Options are exercisable as follows:37.5% of the Options become exercisable after an 18 months’ period from the date of grant through 26 November 2015 to 25 May 2017 inclusive; the remaining Options become exercisable, by tranche of 6.5%, every quarter during the following period of two years and half. Consequently, all the options can be exercised fully for a 5 years’ period (up until 25 November 2024) after they have become 100% exercisable after a 4 years’ period. Options not exercised at the end of this period will be void. The Options are not transferable, except in the event of death of a beneficiary.
105
Cumulative number of stock options cancelled or lapsed
0 0 0
Number of stock options outstanding as at 31/12/15
0 0 0
No member of the management has entered into any employment contract with any member of the
Group and none of them benefits from any pension scheme, Indemnities or benefits due because of
termination or change of function or any contractual compensation relating to a non-competition
clause.
Employment contract
Supplementary pension plan
Indemnities or benefits due or likely to be due
because of termination or change of function
Indemnities relating to a non-competition
clause
Yes No Yes No Yes No Yes No
Massimo Prelz Oltramonti,
Chairman of the Board of Directors
Carlalberto Guglielminotti, Managing Director
9.4. Undertakings by the mangement to hold shares
The management renewed and confirmed the lock-up of every share held as well as of any share
deriving from the exercise of option or warrant until 6 September 2016. The management will hold a
quantity of its shares, obtained by exercising the Stock Options and the Bons de Souscription
d’Actions (warrants) attributed to them, in nominative form.
9.5. Transactions completed by the management
Pursuant to article L. 621-18-2 of the French Monetary and Financial Code and article 223-22 of the
AMF Regulation, the transactions below have been disclosed by members of the management or of
the Board of Directors in 2015:
Date of the
transaction Name and office held
Nature of the
transaction
Price per share
in €
Total number of
the shares/BSA
Total amount of
the transaction
12/05/2015 Emanuela Paola Banfi BSA
subscription 0.01 106,492 1,064.92
12/05/2015 Luca Dal Fabbro BSA
subscription 0.01 106,492 1,064.92
12/05/2015 Luca Dal Fabbro BSA
subscription 0.01 32,868 328.68
12/05/2015 Sonia Levy-Odier BSA
subscription 0.01 13,147 131.47
12/05/2015 Davie Peiretti BSA
subscription 0.01 106492 1064.92
106
9.6. Executive Committee
The senior management of the Company is organized in the form of an Executive Committee, which
meets on a regular basis to discuss decisions to be taken by the management of the Company and its
functioning is not subject to the internal regulations of the Board of Directors. Its composition may
evolve depending on the evolution of the structure of the Company’s senior management. As at the
date of this Annual Report, the Executive Committee is composed of the following individuals:
Carlalberto Guglielminotti, Massimo Prelz Oltramonti, Davide Peiretti, Giuseppe Artizzu, Fabio
Magnani, Paolo Bonetti.
9.7. Specialized committees
Pursuant to article 15 of the articles of association of the Company, the Board of Directors may
decide to create committees responsible for assisting it with its works.
On 6 March 2015, pursuant to article 11 of the internal regulations of the Company, two committees
were established: an Audit Committee and an Remuneration and Nomination Committee, the
composition, attributions and operating rules of which are described below.
(i) Audit Committee
According to the Internal Rules, the Audit Committee is composed of at least three members. The
members of the Audit Committee are designated from among the members of the Board and, as far
as possible, two thirds of them are independent directors.
The Audit Committee is chaired by Massimo Prelz Oltramonti and as at 31 December 2015 was
composed as follows:
• Emanuela Banfi;
• Massimo Prelz Oltramonti; and
• Sonia Levy-Odier.
All members of the Audit Committee have remarkable expertise in financial and/or accounting
matters necessary for carrying out their duties and at least one of them have specific expertise in
financial or accounting matters.
The duration of the mandates of the members of the Audit Committee coincides with that of their
mandate as member of the Board of directors. It may be renewed at the same time as this latter
mandate.
The Audit Committee assists the Board with its mission regarding the monitoring and preparation of
the annual company and consolidated financial statements and of the information submitted to the
shareholders. It is also responsible for ensuring the monitoring of issues relating to the preparation
for auditing of the accounting and financial information, as well as of the legal audit of the accounts.
The Audit Committee shall notably carry out the following tasks:
Monitoring the elaboration process for financial information;
12/05/2015 Massimo Prelz
Oltramonti
BSA
subscription 0.01 32,868 328.68
04/12/2015 Massimo Prelz
Oltramonti
Share
Acquisition in
ABB
6.80 15,000 102,000
107
Monitoring the effectiveness of internal controls, internal audits and risk management
systems relating to financial and accounting information;
Monitoring the legal control of the company and consolidated accounts by the statutory
auditors of the company; and
Monitoring the independence of the statutory auditors.
In order to carry out its mission, if it so desires, the Audit Committee shall consult the statutory
auditors in the absence of the company representatives, of the directors who are not members of the
Audit Committee and the members of the finance department. The Audit Committee may invite the
statutory auditors to attend its meetings.
(ii) Remuneration and Nomination Committee
According to the Internal Rules, the Remuneration and Nomination Committee is composed of at
least three members. The members of the Remuneration and Nomination Committee are designated
from among the members of the Board and, as far as possible, two thirds of them are independent
directors.
The Remuneration and Nomination Committee is chaired by Massimo Prelz Oltramonti and as at 31st
December 2015 was composed as follows:
Cesare Maifredi;
Massimo Prelz Oltramonti; and
Davide Peiretti.
The members of the Remuneration and Nomination Committee have been appointed in
consideration of their independence and competences regarding selection and remuneration of
company representatives of listed companies.
The duration of mandates of the members of the Remuneration and Nomination Committee
coincides with that of their mandate as member of the Board. It may form the object of a renewal at
the same time as the latter.
The Remuneration and Nomination Committee, in its capacity as “appointments committee” has the
missions summarised below:
a) Examination and proposals to the Board of Directors concerning candidates for the position
of directors, of Managing Director, of deputy Managing Director, of Chairman of the Board
of Directors, of members and of chairman of the Audit Committee. In that respect it shall
assess the required competence, knowledge and experience, describe in the missions and
assess the time needed to be devoted to the exercise of the position, taking account the
interests of the shareholders. It shall establish and keep up-to-date a succession plan for the
members of the Board of Directors, the Managing Director and the principal directors of the
Group so that they are in a situation to propose succession solutions to the Board of
Directors rapidly in the event of an unforeseen vacancy.
b) Annual assessment, on a case-by-case basis, of the situation of each director with regard to
the independence criteria listed in the internal regulations and the submission of its opinions
to the Board of Directors.
The Remuneration and Nomination Committee, in its capacity as “remuneration committee” shall
notably carry out the missions summarised below:
a) Examination and proposals to the Board of directors concerning the remuneration of the
directors, the Managing Director and deputy Managing Directors of the Group.
108
b) Provision of recommendations on the remuneration of the directors. These
recommendations on remuneration shall include fixed and variable remuneration, but also,
as appropriate, the share purchase or subscription warrants, the attributions of actions of
performance, the pension and social security regimes, departure indemnities, benefits in
kind or particular benefits and any other element of direct or indirect remuneration
(including, in the long term) which may constitute remuneration of the directors.
The committee shall be informed of the same elements of remuneration of the principal executives
of the Group and of the policies implemented in this capacity within of the Group.
When it issues its recommendations, the Remuneration and Nomination Committee shall take into
consideration the principles of MiddleNext Code to which the Group adheres.
c) Assessment of the amount of attendance fees and of their system of allocation between the
members of the Board of Directors, as well as he conditions for reimbursement of any costs
incurred by these members.
d) Ensuring the observance by the Company of its obligations regarding transparency of
remuneration. On this point, it shall prepare an annual report on remuneration to the
attention of the Board of directors and shall review the Company’s draft annual report on
the remuneration of the directors.
Group structure and share capital
10.1. Share Capital, Treasury Shares and transactions of own shares
On the date of this Management Report, the share capital of the company amounted to €
1,576,361.40, divided in 7,881,807 shares, with a nominal value of € 0.20 each, entirely subscribed and
paid up and in the same category.
No shares issued by the Company have been pledged.
On the date of this report, the Company had not issued any security not representing the share
capital.
On the date of this Report, the Company holds none of its own shares and no share of the Company
is held by one of its subsidiaries or by a third party on its behalf.
The shareholders’ meeting of the Company held on 6 March 2015 authorised the Board to put into
place a share buyback program within the meaning of L. 225-209 of the Code de commerce and in
conformance with Règlement général de l’AMF (the “Buyback Program”). As part of this Buyback
Program the maximum price has been set at 200% of the price per share at the introduction to
trading and the maximum amount of funds to be allocated to this program cannot exceed 5 million
euros. It was also decided that in no case may the Company directly or indirectly hold more than 10%
of its share capital (representing, at the date of this report, 788,180 shares of the Company). The
authorization to put this program into place was given to the Board for a period of 18 months
starting on the date of shareholder’s meeting of March 6, 2015.
The Buyback Program was set in order to achieve the following aims:
(a) to ensure liquidity and an active market in the Company’s shares through an independent
investment service provider pursuant to a liquidity agreement;
(b) to hold shares of the Company in order to be able to further deliver them in exchange for or
as a consideration within the context of external growth transactions;
109
(c) to deliver shares of the Company upon exercise of rights attached to securities giving
access to the share capital of the Company;
(d) to allocate shares to the employees or corporate officers of the Company and its
subsidiaries, notably through bonus shares, stock options, etc.;
(e) to cancel all or part of the shares which have been bought, by means of a decrease in the
share capital; and
(f) any other aim which may be further allowed under French law or admitted as a market
practice by the AMF.
The Company entered into a liquidity agreement on 28 September 2015 with Invest Securities. From
28 September 2015 to 31 December 2015, by means of this liquidity agreement, the Company has
acquired 26,882 shares at an average trading price of 7.186 euros, and sold 18,060 shares at an
average trading price of 7,301 euros.
The shareholders of the company have agreed to implement, for the benefit of executives, directors,
employees, former employees and founders, and consultants of the company and of EPS
Manufacturing, a profit-sharing plan in the form of stock options (defined as the Options in this
report) and, for the beneficiaries who are not eligible to stock options, warrants (defined as the
Warrants in this Report) reproducing the same conditions as the Options. These instruments shall be
attributed within the context of the resolutions described below in paragraph 10.6 of this Report and
adopted by the shareholders on 16 February 2015.
It follows from the above that the Extraordinary General Meeting of February 16, 2015 adopted the
two following schemes:
The Board of Directors was granted all powers to issue a number of Options giving right to a
maximum of 1,008,000 shares of the Company;
The Board of Directors was granted all powers to issue a number of Warrants giving right to
a maximum of 1,019,000 shares of the Company;
The maximum number of shares to be issued as a result of the exercise of the Options and the
Warrants being capped at 1,396,000 shares of the Company.
(i) The first allocation was attributed by decision of the Board of Directors on 6 March 2015
and had the following characteristics:
Beneficiaries:
Options:
349,058 Options, giving right to 349,058 shares, i.e. 3.76% of the share capital on the date of
the allocation, were allocated by the Board to members of the management of the
Company and employees of the Company.
Warrants:
360,890 Warrants, giving right to 360,890 shares, i.e. 3.89% of the share capital were
allocated by the Board to members of the Board of Directors of the Company and former
employees of the Company.
The exercise of these Warrants/Options is subject to a presence but not a performance
requirement
110
Number of shares which may be subscribed through options or warrants:
Each Option and each Warrant shall confer the right to subscribe one share of the Company
Warrant subscription price:
0.01 euro.
Exercise price of the Options and Warrants:
€ 0.20.
Exercise timetable:
The Options and Warrants shall become exercisable one year after their attribution, namely
starting from 6 March 2016 and for 5 years, i.e. until 5 March 2021 at midnight.
(ii) The second allocation was attributed by decision of the Board of Directors on 21
April 2015 and had the following characteristics:
Beneficiaries:
Options:
331,965 Options, giving right to 331,965 shares, i.e. 3.578% of the share capital on the date of
the allocation, were allocated by the Board to members of the management of the
Company, members of the Board of Directors and employees of the Company.
Warrants:
78,883 Warrants, giving right to 78,883 shares, i.e. 0.85% of the share capital were allocated
by the Board to members of the Board of Directors of the Company.
The exercise of these Warrants/Options is subject to a presence but not a performance
requirement
Number of shares which may be subscribed through options or warrants:
Each Option and each Warrant shall confer the right to subscribe one share of the Company.
Warrant subscription price:
0.01 euro.
Exercise price of the Options and Warrants:
€ 5.11.
Exercise timetable:
The Options and Warrants are exercisable as follows:
37.5% of the Options or Warrants become exercisable after a 18 months period from the
date of grant through 21 April 2015 to 20 October 2016 inclusive;
the remaining Options or Warrants become exercisable, by tranche of 6.5%, every
quarter during the following period of two years and half.
Consequently, all Options or Warrants become exercisable after a 4 years period, and are
exercisable until 20 April 2024 inclusive.
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(iii) The third allocation was attributed by decision of the Board of Directors on 26
November 2015 and had the following characteristics:
Beneficiaries:
Options:
166,340 Options, giving right to 166,340 shares, i.e. 1.79% of the share capital on the date of
the allocation, were allocated by the Board to members of the management of the
Company, members of the Board of Directors and employees of the Company.
Warrants:
5,000 Warrants, giving right to 5,000 shares, i.e. 0.05% of the share capital were allocated by
the Board to members of the Board of Directors of the Company.
The exercise of these Warrants/Options is subject to a presence but not a performance
requirement
Number of shares which may be subscribed through options or warrants:
Each Option and each Warrant shall confer the right to subscribe one share of the Company
Warrant subscription price:
0.01 euro.
Exercise price of the Options and Warrants:
€ 5.81.
Exercise timetable:
The Options and Warrants are exercisable as follows:
37.5% of the Options or Warrants become exercisable after a 18 months period from the
date of grant through 26 November 2015 to 25 May 2017 inclusive;
the remaining Options or Warrants become exercisable, by tranche of 6.5%, every
quarter during the following period of two years and half.
Consequently, all Options and Warrants become exercisable after a 4 years period, and are
exercisable until 25 November 2024 inclusive.
(iv) Summary of dilutive instruments
The total number of ordinary shares likely to be created by full exercise of the Options and
Warrants attributed or due to be attributed, amounts to 1,292,136 new shares,
corresponding to a maximum dilution of about 13.93% of the existing capital as at the date
of this Management Report. The dilution of the voting right is identical at 13.93%.
None of the Options or Warrants has been exercised yet.
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10.2. Breakdown of the share capital
As at 31 December 2015, the share capital of the Company was allocated as follows:
Shareholder Shares % of
share capital
Theoretical voting rights*
% of theoretical
voting rights
Voting rights exercisable in shareholders’
meetings
% of voting rights
exercisable in
shareholders’ meetings
360 Capital One S.C.A. – SICAR
2,253,367 29% 2,253,367 29% 2,253,367 29%
Prima Electro S.p.A.
1,433,464 18% 1,433,464 18% 1,433,464 18%
Ersel Asset Management
902,438 11% 902,438 11% 902,438 11%
Public & Institutional Investors
3,292,538 42% 3,292,538 42% 3,292,538 42%
TOTAL 7,881,807 100% 7,881,807 100% 7,881,807 100%
To the Company’s knowledge, there is no other shareholder holding directly or indirectly, more than
5% of the share capital or the voting rights of the Company. No shareholder has declared to the
stock-exchange authorities that they are acting in concert with another.
On the 29 December 2015, Brighton NC Machine Corporation (7300 Whitmore Lake Road, Brighton
MI, USA 48116), has declared to the stock-exchange authorities that they have crossed downward
the thresholding of 5% share capital and voting rights within Electro Power Systems and holds now
302,520 shares representing 3.84 % of capital and voting rights of this society.
To the Company’s knowledge, the allocation of the share capital has not evolved since 31 December
2015.
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10.3. Employees holding of the share capital
Pursuant to the characteristics fixed by the Company’s shareholders’ meeting held on 16 February 2015, the
Options have been proposed by the Board of Directors on 21 April 2015 to the following member of the
Board of Directors and employees of the Company (the “Beneficiaries”):
Beneficiaries of Options Functions Number of Options
Carlalberto Guglielminotti CEO 450,948
Giuseppe Artizzu Executive Director 143,840
Ilaria Rosso Chief Innovation Officer 31,225
Fabio Magnaani Chief Operating Officer 71,802
Emiliano Novo Chief Technology Officer 31,225
Cristina Pullara Employee 2,191
Vincenzo Roccuzzo Employee 2,191
Stefano Micucci Employee 2,191
Lorenzo Cantone Employee 2,191
Maurizio Perino Employee 2,191
Rachele Valentina Generoso Employee 2,191
Giovanni Conidi Employee 313
Artela Filipi Employee 313
Michele d’Elia Employee 313
Agostino Pignone Employee 313
Enzo Scarfò Employee 313
Simone Silvini Employee 313
Renzo Mittica Employee 313
Paolo Anrò Employee 313
Giovanni Angiolella Employee 313
Alfredo Destefano Employee 313
Maurizio Magri Employee 313
Danilo Accossato Employee 313
Danilo Rossi Employee 313
Marco Congiatu Employee 313
Marco Muzzetto Employee 313
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10.4. Agreements entered into with subsidiaries
Electro Power Systems Manufacturing has established various agreements with Prima Electro S.p.A. (one
of the Group’s principal shareholders and the preferential supplier of electronic components for electricity
and control, specially developed for the Group’s products), relating to supply, research and development
and a leasing agreement for commercial use.
On the date of this Report, these agreements include :
a strategic partnership agreement entered into on September 24, 2015, in order to set out the
arrangements for the development, manufacturing and supply by Prima Electro of certain
products which EPS Manufacturing agrees to purchase. This agreement supersedes and extends
a previous supply and cooperation agreement entered into on 16 October, 2009.
With the new agreement, EPS Manufacturing, in continuity with the past, confirms Prima Electro as
strategic and preferred partner for the co-development of power and control electronics related to both
energy storage and back-up applications and, the manufacturing of the products by utilising manufacturing
expertise, facilities and know-how of Prima Electro. This agreement shall be effective for an initial period of
7 years (the “Initial period”), being excluded the possibility of an early termination during the first 7 years,
unless by mutual agreement or for default. The prices are determined taking into account the full industrial
cost plus a 25% mark up.
10.5. Loans granted to small related entities
During the financial year 2015 Electro Power Systems S.A. has trasferred to EPS Inc, in view of the
intercompany loan agreement entered in and between the Company and Electro Power Systems Inc. on
December 2015, an amount of EUR 60,000 on 28th December 2015.
During the financial year 2015, the sole shareholder and the parent company Electro Power Systems S.A.
has wired in different tranches and timing according to EPS Manufacturing S.r.l. needs, EUR 6,019,997 in
order to hedge the expected losses for the financial year closed at 31 december 2015. All the deposit done
towards EPS Manufacturing have been done on the form of contribution to reseve and not as intercompany
loan. These financial resources were necessary for the ordinary and extraordinary operating activities, for
the research and development of new products and the construction of the new production site.
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10.6. Delegations to the board of directors realted to increase of the share capital
The issuance resolutions approved by the general meetings of shareholders of 16 February 2015 and 6
March 2015, ruling in an extraordinary capacity, are summarised below:
Delegations granted by the General Meeting to the Board of Directors Duration of
validity / Expiry Ceiling in nominal
value terms
Use
Price determination
procedures
Delegation of authority granted to the Board of Directors with a view to increasing the share capital by issuance of ordinary shares or securities granting access to the share capital, with the maintenance of the pre-emptive subscription right
26 months
(1)
€ 1,250,000
(2) - -
Delegation of authority granted to the Board of Directors with a view to increasing the share capital by issuance of ordinary shares or securities granting access to the share capital, with the suppression of the pre-emptive subscription right through an offer to the general public
26 months
(1)
€ 1,250,000
(2)
Refer to (3)
Refer to (4)
Delegation of authority granted to the Board of Directors with a view to increasing the share capital by issuance of ordinary shares or securities granting access to the share capital, with the suppression of the pre-emptive subscription right through private placement
26 months
(1)
€ 1,250,000 up to the limit of 20% of the share
capital per 12-month period (2)
Refer to (11)
Refer to (5)
Delegation of competence to the Board of Directors in the event of issuance of ordinary shares or securities granting access to the share capital, with the suppression of the pre-emptive subscription right with a view to setting the issue price, up to the limit of 10% of the share capital
26 months
(1)
up to the limit of 10% of the share capital
- Refer to
(6)
Authorisation to the Board of Directors to increase the number of securities issued, with the maintenance or suppression of the pre-emptive subscription right in the event of excess demands
26 months
(1)
up to the limit of 15% of the initial issue
(2)
Refer to (7)
Same price as the initial issue
Delegation of authority granted to the Board of Directors with a view to increasing the capital by issuance of ordinary shares or of securities granting access to the share capital, up to the limit of 10% of the share capital, for communicating contributions in kind granted to the Company outside of a public exchange offer
26 months
(1)
€ 1,250,000
up to the limit of 10% of the share capital as it stood on the date of the
considered operation (2)
- -
Delegation of authority to the Board of Directors with a view to increasing the share capital by the issuance of ordinary shares or of securities granting access to the share capital, in the event of a public exchange offer initiated by the Company(1)
26 months
(1)
€ 1,250,000
(2) - -
Delegation of authority granted to the Board of Directors with a view to a capital increase through the incorporation of reserves, profits or issue premiums, of merger or contribution, or any other amount for which the capitalisation would be accepted
26 months
(1)
€ 1,250,000
(2) - -
Delegation of authority granted to the Board of Directors with a view to issuing autonomous warrants, reserved to named persons
18 months
(9) € 203,800
Refer to
(9) Refer to (10)
Authorisation to the Board of Directors with a view to granting options for the subscription and/or purchase of shares
38 months
(9) € 1,008,000
Refer to
(9) Refer to (10)
Delegation of authority to the Board of Directors with a view to reducing the share capital by cancellation of shares within the context of the authorisation to acquire its own shares
24 months
(1)
10% of the amount of the share capital per
24-month period - -
Our responsibilities to our people, environment and society
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11.1. Our responsibility to the EPS’ people
The Group considers its employees as the main contributor to creating value and the strategic factor
in its own success. Dedicated employees with diverse background play a crucial role in creating the
innovative corporate culture EPS needs to be successful and reach the targets. For that reason, their
professional and personal fulfillment and their motivation are the key drivers for the Group
development. In this context, the principal employment-related challenges are:
Developing a team spirit around the Group’s values
Maintaining excellence and a top level of know-how and expertise level
Ensuring equal opportunity employment and zero discrimination
Promoting dialogue between employees and management
Securing top working conditions no matter what
11.1.1. A balanced organization
As EPS becomes an ever more global company, it is essential for our growth and competitiveness
that we further develop diversity, improve our performance, expanding and realigning the Group’s
organization. We want to make EPS a more diverse, collaborative and enjoyable place to work. In
2015 every aspect of the Group’s workplace has been transformed, from the employment of new
people, to the design of our offices, passing through the launch of flexible working initiatives, and
replacing internal emails with other collaborative and social tools, down to the organization of our
work.
Management attaches great importance to the full understanding of the corporate culture and
ensures that every employee fully supports the Group’s strategy. Through regular information
meetings on business developments and trends, EPS’ women and men are kept up-to-date on
expectations of management and stakeholders. This commitment to the EPS’ spirit also involves a
commitment to its ethical values by each employee, who is asked to adhere to the Group’s Code of
Ethics, that is focused in particular on business confidentiality, sensitive transactions, health & safety,
responsibility, risk management, respect for individual freedoms.
Within the Group the organization is extremely flexible and, thanks to the new matrix organization,
made of small teams who ensure horizontal interaction and a continuous adaptation to all changes or
evolving external conditions.
We employ a workforce of technical, scientific and industry specialists whom we rely on to ensure the
technological excellence and safe operation of the Group’s systems around the world.
Although we are an Energy Company, EPS is made up of many other facets. Strong and committed
managers play a decisive role in the successful execution of the Group’s strategy. EPS’ leadership
model clearly states that leaders have the responsibility to achieve business results and be people
leaders at the same time.
Our team of corporate professionals and staff functions, although based in different locations, ensure
we operate effectively as a listed company and in the most transparent way.
At the end of 2015, the Group had 42 employees for a total organization including dedicated business
partners totalling 57 human resources, ow which 32 permanent contracts. Since the end of 2014 the
Group is engaged in a significant corporate reorganization with no recourse to social shock absorber.
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The Group promotes the careers of women and getting the work-life balance right between
employment and family (please see the maternity leave and flexibility provisions under section 3.6
and 3.2.1). In comparison to 2014, last year the percentage of female workforce increased from 18%
to 21%.
The percentage decreased to 19% at the beginning of the 2016, which was due exclusively to the
acquisition of Elvi Energy, where the quasi-totality of the resources are electrical and system
engineers, a specialization which is rarely addressed by women.
This decreasing trend of women presence is expected to stop and turn upside-down during 2016.
Indeed, at the date of this annual report, women already cover 80% of the corporate and staff
positions composed of Legal & Governance Affairs, Innovation & European Affairs, Investor
Relations, Communication & Media Relations, and Office of the CEO.
Flexibility and diversity are key elements for creating an employment environment which will enable
us to remain an attractive company over the time.
As regards the age structure of the workforce, the Group has in whole a balance, which has allowed a
constant presence of senior staff that enriches the Group’s expertise besides the junior staff.
Additionally, the Group’s contacts to school and universities enable the recruitment of high potential
young specialists, thus bringing a reinforcement to the highly skills and new ideas requested per each
recruitment.
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Our energy experts, scientist and technologists, their skills and competences are our primary assets
and this means we have a specific responsibility towards our people. As we want to develop our
business and climb the value chain, the Group considers R&D critical to active innovation,
technological excellence and corporate growth. Regarding the distribution of employees by
occupational category, research and development and engineering is the most representative area:
43% of the EPS’ women and man work on innovative projects and technologies (Technology, R&D,
Innovation and Engineering).
The breakdown of the workforce is as follows:
The Group boasts an extremely talented staff, with almost 73% of the headcount with a university
degree, of which 48% in Engineering, and 25% with a Ph.D. or an M.B.A.
We consider diversity as an enrichment, because it supports the cultural change within EPS and
improves our routine work everyday.
Since the end of H1 2015, the Group has increased its global presence by launching operations in San
Francisco in October 2015, by appointing on November 2015 a highly experienced energy executive
to lead the development on the Asia-Pacific market, Mr. Khek Koon Then, and by establishing key
partnerships for business development with dedicated resources such like the Bryanston Resources
team, and Massimo Quattrocchi.
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11.1.2. Our team is growing
Electro Power Systems offers opportunities to pursue a career in a pioneering company with a strong
focus on quality, innovation and sustainability.
Throughout the year, the Group has continued to promote and reward internal mobility with a
communication campaign directed to employees showing the diversity of career paths supported
within the Group.
In 2015 the recruitment trend was very positive: 26 new human resources entered the Group and the
trend will continue in the following year as well. This was due to the recruitment campaign launched
since June 2015 that will continue on 2016. More than 19 new job positions are expected to be filled
within 2016, which will reinforce the Innovation, Technology, Production and Energy departments.
11.1.3. Remuneration: we reward performance
The compensation policy aims to attract, retain and reward employees, based on their collective and
individual performance. This policy is grounded on four principles: rewarding performance, remaining
on budget, ensuring that all employees are compensated according to the same principles and
reflecting going rates. Total compensation is broken down to:
Fixed compensation: base salary, seniority benefits etc.;
Variable compensation: linked to specific jobs or to individual performance (bonus/variable
component or allowance), which is measured quarterly based on the appraisal process outlined in
section 3.1.4 below;
Benefits: health and insurance benefits are provided to all the employees; and
Mandatory and optional profit-sharing: based on criteria for rewarding collective performance and
quarterly appraisal process.
Compensation shall be based and benchmarked on the collective industry scheme for metal-workers
(Contratto Collettivo Nazionale del lavoro, CCNL Metalmeccanici). As per 2015 the total
compensation of the EPS employees was 41% higher than the minimum compensation guaranteed
per each category by said collective scheme agreed with the Trade Unions.
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11.1.4. Appraisals and career development
The Group’s variable compensation program, based on both collective financial performance,
individual objectives and appraisal results is gradually being brought into alignment since 2015. The
target percentages for variable compensation depend on local practices and are structured by level of
responsibility. The results of appraisals in 2015 have allowed an increase of promotions by 6% and
66% of these promotions involved women within the Group who did not hold previously managing
positions.
The appraisal platform studied and designed specifically by EPS has allowed an equal, independent
and anonymous evaluation of the employees by their peers, direct reports and by the top
management. All employees are evaluated and ranked based on their performance and potential.
For evaluation purposes, it was established a five pillars set of criteria in order to assess performance:
analytics and insight
understanding of the issue and recommendation of realistic solutions, based on sound
business sense
accurate and rigorous analyses
priorities management
effective planning
team and self management
efficient time management
direct reports and/or colleagues motivation
use and provision of feedback
independent behaviour and help requests when needed leveraging supervisors time and
skills effectively
calm reactions and focus in stressful situations
entrepreneurial mind-set
contribution to the development of EPS as a company
self-application to develop new business/R&D
identification of new business development and R&D
contribution to creating strong EPS relationships
knowledge creation, arrangement and/or spreading
commitment and motivation
ownership of the project at hand
will to run the “extra mile” when needed
proactive engagement in new challenges
endeavour to think in solutions
care about advancing the project no matter what
On the basis of these criteria of evaluation, the employees are then assessed according to their
performances, which rank from below expectations, meets expectations, above expectations to
outstanding, combined with their potential of improvement, which is ranked in high, good and
development needs.
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The results obtained by this appraisal allocate the employees within different areas of the evaluation
card, thus paving the way for a reassessment, for an improvement course or for an early promotion.
All those employees who are ranked at the extreme top right of the chart become part of the
Academy Talent Program (“ATP”), which consists in a three-year program dedicated to selected
talents within the EPS Group worldwide. The ATP, subject to regular performance and improvement
appraisal, implies:
(iii) increases of the total compensation and promotion program
(iv) stock options plans
(v) benefits, bonuses
(vi) courses, masters
(vii) secondment programs
The Group will continue to build a value-driven high-performance culture across all our operations,
supporting each and every employee in evolving his/her skills and career through our diverse systems
for talent development.
11.1.5. Our team, engaged shareholders
The Group offered stock options to all its employees for the first time in 2015, by allocating stock
options plans and profit sharing plans. As a result today 3.55% of fully diluted shareholding is held by
Group’s employee and 10.77% is held by its directors.
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11.1.6. Evolution in compensation, our main investment
Due to the growth from 2014 to 2015 of the whole EPS staff, total compensation for the Group
almost doubled from Euro 1.1mio in 2014 to Euro 2.2mio in 2015.
11.1.7. Work-life balance strategy
Working time and maternity protection
The average number of working hours per week is set by law. Full time employees work between 35
and 40 hours per week. EPS has also set up initiatives for a better work-life balance by offering
flexible work hours at the site. For that matter the Group has not implemented a control system on
working hours, badging is done only for security reasons to monitor the persons actually present in
the company during the day. In addition, women with at least two children can benefit from part-
time conditions and remote working flexibility programs. At the date of this report 100% of the
women with at least two children have opted for – and obtained – such flexibility schemes.
(viii) Our results: low absenteeism
The Total Absenteeism rate, which is a key indicator for measuring employee engagement and
motivation, in 2015 was 1.1%. It has to be noted that 0.8% was due to sickness, and therefore the
adjusted absenteeism rate, calculated taking into account the most conservatives parameter
(including maternity leave as per Methodology Note in section 6) is totaling 0.3%.
11.1.8. Constant trade unions and labour relations
The Group has historically recognized a pivotal role to trade unions and social representatives to take
any key decision regarding its personnel.
At EPS this dialogue plays an essential role and goes beyond the formal legal obligations that are
required, providing important input to identify any issues and fine tune strategic decisions and
operations.
During the year dialogue with trade union representatives of our employees was fundamental in two
key occasions: for the change management process that brought to the relocation of our operational
site from Aosta to Turin, as well as to support the integration of Elvi Energy within the Group.
Managing relocation, inevitably involves the populations or individuals affected and a careful
assessment of the psychological and social problems that can be expected at both individual and
group level. During the relocation of our operational site, together with trade union representatives
we examined economic, social and demographic aspects, forms of organization, and the levels of
employment and pay in order to mitigate as far as possible the impact of such change.
At the moment of this reporting, after the acquisition of Elvi Energy, meetings between local labour
representatives in Valtellina (Italy) and the Group’s representatives are ensuring tight coordination
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throughout the integration processes. In particular we’re defining a common business travel policy
within the Group that takes into account the peculiarity of the regions where the Group’s operational
sites are located, as well as workers’ health and safety. No collective agreements were signed in 2015,
because both the business travel policy and the relocation of our production site will be formally
defined by a collective agreement in Q1 2016.
11.1.9. Health and Safety as a priority
Health and Safety are EPS’ number one priority. The Group is committed to providing a healthy work
environment for employees, contractors and all others at our sites to help meet our company-wide
goal of achieving no harm to people. We strive to impart to employees a strong personal safety ethic
that is rooted in awareness, focused on prevention and motivated by concern for human life. Because
we want our workforce and the employees of our partners to return home every day as healthy as
when they came to work first thing in the morning. The Group is fully compliant with the Italian
regulation D.Lgs. 81/08 promoting activities,
training, prevention and awareness-raising on health and safety issues and drawing up and collecting
good practice. For this reason and considering the nature of our operations, no collective agreements
were signed for health and safety matters in 2015.
Even though the results are easily observed through indicator trends (chart occupational incidents,
injuries, accidents), there are many underlying factors: work organization, risk assessment and
mitigation, training, the state of the equipment, management of production processes, corporate
culture and the management’s leadership on the subject.
Our trend on work safety is a positive one; nonetheless, EPS continues to work to further improve its
performance by remaining highly focused on the health and safety of its people and contractors. The
Group has applied a health and safety management system and has a Health and Safety
Representative (Responsabile del Servizio Prevenzione e Protezione - RSPP) who supervises the
compliance to the certifications OHSAS 18001, ISO 14001, ISO 9001 conferred to the Group.
The health and safety management system guarantees an effective and systematic administration of
employees’ safety without disrupting the organizational work structure by implementing since 2006
the following:
adoption of a policy for the safety management;
hazard identification, risk assessment and identifying the risk control procedures, as per
legislative requirements;
definition of specific programs and objectives;
definition of tasks and responsibility;
education, training and staff involvement;
implementation of communication and consulting procedures with the employees and
stakeholders;
controlled management of archives;
implementation of management procedures on the activities related to significant identified
risks, including processes, such as design and maintenance;
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preparation of measures to detect, prevent and monitor potential accidents (injuries and
failed accidents) and emergencies;
Health and Safety system monitoring and performance measurements, corrective actions
undertaken to maintain legal compliance;
definition and implementation of systematic and periodic inspections (accidents, incidents,
non-conformities, corrective and preventive actions) on management system adequacy; and
identification and assessment of risks and dangers associated with the activities carried out
by third parties at Group’s site.
The key performance indicators we use for occupational safety are the Total Recordable Injury Rate
(“TRIR”) and the Lost Time Injury Frequency Rate (“LTIFR”) the number of accidents with the loss of
at least one day of work. In the reporting year 2015 we succeeded in maintaining the number of
occupational diseases to zero and we had only one occupational injury that caused the loss of no. 3.5
working days.
Several measures were taken during the 2015 in order to create the best work conditions and improve
work place comfort in all EPS premises: lighting conditions, ergonomic office chairs with silicon
wheels to reduce noise, correct height of office table, relaxing spaces.
The new offices and premises in Turin (Italy) were studied in order to guarantee excellent work
conditions. These offices, designed by international interior designers, are calm and bright, and all
employees are equipped with laptop: there is no pre-assigned desk, as any premises of the Group is a
“working area”, to encourage team working and horizontal interactions between the team members.
We invested approximately 800,000 euros for the new facilities in Turin, and in 2016 we will align also
the Milan and Delebio premises to such standard of excellence.
Furthermore, particular attention has also drawn the subject of good posture in workplace and the
muscle-skeletal and related hazards.
Itinerant employees are provided with quality company cars and computer equipment and
smartphones specifically adapted to their needs and to facilitate their work conditions wherever
should they find themselves.
The Group encourages employees to undertake periodical medical checkups, by providing employees
with a health insurance coverage, which guarantees a reimbursement for specific medical and
surgery costs sustained by the employees during the year.
With our well-being commitment, we are involved also in promoting the personal wellness of EPS’
people against a broader public health challenge such as obesity. For this reason the Group decided
not to install any vending machine in its premises, to contribute reducing the consumption of high-
calories snacks and carbonated drinks, while cutting the environmental impact of logistics and
packaging associated to this distribution channel.
In all the countries where the Group operates, we will evaluate the need of specific collective
agreements to further regulate aspects of workers’ health and safety.
While upholding occupational Health and Safety as one of our top priorities, we will continue to
improve the working environments through:
safety measures for equipment
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assessments to promote risk mitigation
specific corporate communication appointment
training programs that teach employees skills and information about risks management
organizational principles
healthy practices
employee climate surveys.
In 2016 the Group will launch a specific healthy living program to inspire a happier and more active
lifestyle based on nutrition information, balanced diet choices and sports practice. In particular, the
Group encourages its employees to attend at least one Run 5.30: a non-competitive 5.3km run in the
middle of Turin and Milan at 5:30am of a business day. This is a net-zero initiative with the goal to
promote a wealthy lifestyle through running, food, culture, art and experience in the context in which
people lives and works.
Finally, the Group is assessing a collaboration with local producers and innovative start-ups to supply
fresh fruits every morning in its production sites and premises.
11.1.10. Continuous Training
The exchange of information and the dissemination of a corporate culture through initiatives to raise
awareness and specific training courses delivered to the entire workforce with no exceptions are
fundamental to maintaining good safety results. As required by the law the Group has a Health and
Safety Executive Committee. During 2015 the Group has invested in 440 training hours divided in:
Since July 2015 the Group launched the EPS’ Academy, the in-house training and management
school supporting the corporate strategy and business with weekly meetings and courses. The EPS’
Academy aims to promote the development of workers and their ability to come up with effective
problem solutions. Considering the respect for the environment is already embedded in our business
strategy, in 2015 we did not provide our employees with any further training on the protection of the
environment.
In 2016 the Group will extend the training on first aid to all employees. Special and practical courses
of the EPS’ Academy are also under evaluation and will be implemented in close collaboration with
the our workforce. Particularly for training and information towards employees on environmental
protection. The Group will also take into account measures to help prevent and reduce psychological
stress on its employees.
11.1.11. Equal opportunities for the EPS’ people
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The Group considers the features and ambitions of its people as a valuable resource and is committed
to creating a working environment that guarantees equal opportunities and values the results of its
employees. The Human Resources department pays particular attention to ensuring equal
opportunity and non-discrimination for each recruitment. Only skills, experience, qualifications and
the personality of the candidates are taken into account in the election process for new employees.
The diversity in terms of profiles, culture, age and gender within the Group constitutes a decisive
strength and one of the most important assets.
The Group also promotes gender equality in hiring and employment, offering equivalent career paths
to men and women as well as equivalent compensation and promotions. The company ensures equal
access to training and is committed in improving the work-life balance of its people, increasing
employee awareness and communication with colleagues at all levels. All EPS’ women and men,
regardless of marital status, qualify for maternity and paternity leave as per local legislation.
Furthermore, as a sign of particular respect and support towards maternity, the Group guarantees
No. 3 months of work-at-home to pregnant women to be utilized one-off in full, or on a non-
consecutive basis, at full discretion of the employee.
As globalization and other global trends advance, we will expand the place of women and foreign
national employees in the workforce, especially in executive posts. We will endure in our effort to
create a work environment where each employee can demonstrate his or her talents to the greatest
extent possible. As EPS becomes an ever wider company, it is essential for our growth and
competitiveness that we express the value of the diversity of our workforce in all its forms. The Group
has signed an agreement with the Piemonte Region, to provide disable people with sustainable work
opportunities. At this extent, the Group will engage specialized employment service providers which
work with disabled people only, such as the Italian start-up Jobmetoo (formerly JobDisabili). In March
2016 we will open the doors to the first disabled person in EPS.
11.1.12. International Labor Organization compliance
The Group promotes and implements business ethics and respect for human rights and the
fundamental conventions of the International Labor Organization Declaration (“ILO”). The Group
confirms its commitment on the compliance with the ILO Declaration on fundamental Principles and
Rights at Work. We support and uphold the freedom of association and the effective recognition of
the right to collective bargaining. All Group staff are employed in countries with favourable labour
legislation. EPS does not operate with Group’s employees in countries subject to risks with respect to
noncompliance with international labour conventions. The Group respects the convention for the
abolishment of child labour since all employees are of legal age at the time of their recruitment.
The Group envisions a labour-management partnership for participation and cooperation. We aspire
to materialize community-type labour-management collaboration that helps build global
competitiveness in our business, enrich the lives of our employees, and contribute to social
development through sustainable performance.
We believe in a horizontal relation between labour and management, not the vertical one that has
often defined the dynamics between trade unions and management. We seek to establish a labour
management collaboration underpinned by mutual respect and equality.
The Group has therefore put in place a unique model for collaboration that facilitates interactive
participation and cooperation in three different dimensions, interlinked with labour-management
collaboration, namely, corporate management, field operation and collective bargaining. The
direction of cooperation between labour and management is defined as follows:
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to enhance the value of the company and the employees through transparent and open
management in the corporate management dimension;
to maximize productivity through strong teamwork and innovation in the field operation
dimension; and
to establish a business-oriented labour-management collaboration on the basis of rational
industrial practices and a productive negotiation culture in the collective bargaining
dimension.
11.2. Our responsibility to Society
11.2.1. Territorial, economic and social impact in terms of employment
In pursuing its corporate goals, the Group is committed to contributing to the development of
territories in which it operates by generating employment and income to local communities. This
commitment is realized through collaboration in various projects with governments and local
stakeholders, local content promotion, projects for local communities and with the preventive and
inclusive stakeholders.
As our business continues to grow, we are creating more jobs and welcoming more individuals to the
EPS family. To cultivate the economic opportunities that build mutually beneficial relationships in the
communities where we operate, our manufacturing site and premises prioritize hiring colleagues
from the local areas. As outlined in this report in 2015 the Group hired no. 26 new resources,
transforming no. 2 internship in permanent contracts, also takes advantage of the collaboration of
partners of excellence from the worlds of university, research, top-level consultancy, both at an
international level and in Italy.
11.2.2. Innovation as local development driver, partnering with Universities
In pursuing its corporate goals, the EPS is committed to contributing to the development of
territories in which we operate. This commitment is realized through collaboration in various projects
with governments and local stakeholders, local content promotion, projects for local communities
and with the preventive and inclusive stakeholders.
The Group has a consolidated presence in many Italian areas and has consistently built long-term
relationships based on projects with national and regional authorities aimed also at sustainable
development.
HYSOLWIND project: launched in 2012, the project has led to the development, production
and deployment of an integrated and optimized solution for energy storage in the off-grid
sector that integrates hydrogen, wind and solar. The innovative solution is installed and
under testing in the town of Macomer, in Sardinia (Italy).
GBMP project: EPS acts as a partner in a consortium made up of regional industrial
companies: Spesso Gaskets and Ferioli & Gianotti Thermal Treatments and with the
technical and scientific excellence of the Department of Applied Science and Technology of
the Polytechnic of Turin.
ALCOTRA project: our products become co-generation solutions, installed to generate heat
and power. Two application fields are explored: off-grid village in Lavasè, Valle d’Aosta
Region (Italy) and greenhouse for plant cultivation in Albenga, Liguria Region (Italy). The
Group acts as the only participant in this project.
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In order to reinforce local partnerships already in place with the companies Mavel LTD and Eltek Plast
S.p.A. and join the network and active research centers in the Valle d’Aosta Region, EPS advanced to
the local political administration an establishment request for new premises, with the aim to
maintain local premises in the region.
Unlike other organizations which acknowledge the importance of a constructive dialogue with
universities only after years of activity, EPS has a strong and everlasting relationship with the
Polytechnic of Turin right from the start. The Group has implemented an agreement with the
Polytechnic of Turin, to support the design of the HyESS platform: Finite Element Method (FEM) and
Computational Fluid Dynamic (CFD) analyses have been performed on main components together
with Reliability, Availability, Maintainability, Safety (RAMS) analyses of the overall architecture.
The Group has a collaboration with the Istituto Superiore Mario Boella (ISMB) – a research and
innovation center operating in the ICT domain - for the web-based remote control development of
the HyESS.
At the moment of this reporting, the Group is further developing the collaboration with local
stakeholders, in particular the Valle d’Aosta Region and the Piemonte Region, which are creating a
technological and research hub, to engage multinational companies in research and development
projects with direct effects on the local productive ecosystem.
Over the time we extended the dialogue to another leading Italian University: the Polytechnic of
Milan, where Giuseppe Artizzu, Director of Global and Energy Strategy at EPS is visiting professor
and board member of the Master Course on RIDEF (Renewables, Decentralization, Efficiency and
Sustainability). At the end of 2015 we deepened this relationship even more with the strategic
acquisition of a participation in MCM Energy Lab, a center of excellence, participated by the
Polytechnic of Milan. MCM Energy Lab is specialized in the development, design and supply of digital
control and static energy conversion systems which can be used as critical components in various
applications, always with the aim of achieving energy savings. The main component of MCM
technology is the Universal Digital Control System that provides an advanced interface to the public
grid for Distributed Generation systems, suitable for all sources, such as wind, photovoltaic, gas
micro cogeneration and mini hydroelectricity plants.
11.2.3. Sponsorships and charities
EPS contributes to associations intervening in the areas of solidarity and childhood, by providing
financial assistance to support their projects.
On October 2015 we launched the twitter contest #unsecondo (one second) in cooperation with the
national newspaper La Repubblica. This contest invited all the non-profit organizations to tweet by
trending the hashtag #unsecondo on how they spent one second of their time. The non-profit
organization that wrote the best tweet, received a funding of 5,000 euro (the financial equivalent of
one second of energy consumed in Italy) to their main project.
The winner of the contest was the AIEonlus (Associazione Italiana Endometriosi), constituted and
managed by women affected by the endometriosis syndrome, in order to support women
emotionally, promote people’s awareness about the disease, solicit institutions on this condition and
promote scientific research.
The Group since 2015 has decided to replace the amount usually planned for the Christmas corporate
gifts with a donation to the Paideia Foundation. Founded on 1993 by the Giubergia and Argentero
families, and supported by the Ersel Group and by many other donors. In 1998 the Paideia
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Foundation was recognized among the non-profit organizations of social utility. The purpose of
Paideia is enclosed in its name, more specifically in ancient Greek the word ‘paideia’ had many
meanings including: childhood, growth, education, training and culture. The Foundation is focused
today mainly in the rehabilitation of disabled children and in the inclusion of their families during the
process.
The Group aims at including sponsorships and charities within a wider and more structured Corporate
Social Responsibility plan. At the moment of this report, we’re taking into consideration continuous
collaborations with well-established and renowned international solidarity NGOs, who are directly
involved in projects for the supply of electricity to under-electrified locations and people.
11.2.4. A supply chain engaged in Social and Environmental Responsibility
The Group business relies on effective and sustainable supply chains to meet the evolving needs of
our customers. As we do with all of our stakeholders, we strive to create relationships with suppliers
that are built on a foundation of integrity, respect and mutual benefit.
We seek the most responsible and cost-effective ways to secure goods and services from our
suppliers. In particular, we emphasize relationships with entities near our operations to the extent
they meet our requirements. By supporting local suppliers, EPS benefits from proximity and security
of supply, contributes to local economies and helps attract additional investment to the community.
EPS’ business relies on effective and sustainable supply chains and partnerships’ agreements to meet
the evolving needs of our customers on the technical, energy and economic front. As we do with all of
our stakeholders, we strive to create relations with suppliers, providers and business partners that are
built on a foundation of integrity, respect and mutual benefit. The Group is committed to build sound
partnerships with suppliers through fair-trading in compliance with procurement-related laws and
regulations.
Our extremely innovative activity often requires exclusive components, products and supply which in
most cases are customized for our special needs or provided by a unique partner. However,
regardless of challenges, we’ve been selecting our technology providers paying a particular attention
on their reputation in terms of social responsibility and operational excellence. The procurement
department, in close collaboration with Engineering, Innovation, Technology and R&D has selected
suppliers based on various Total Cost of Ownership (TCO) targets, combining economic performance
with environmental responsibility. We work continually to improve the supply chain with a strong
focus on its sourcing, sustainability, traceability and transparency. To reduce risks linked to the
procurement, the Group has been working both at an engineering and market investigation levels on
a variety reduction program, to ensure the sustainability of our purchasing.
The Group has agreements with the company Prima Electro S.p.A one of the Group’s principal
shareholders and the preferential supplier of electronic components for the control and the system
management, specially developed for the Group’s products. Over the time, we established various
agreements with Prima Electro S.p.A., part of the Prima Industrie Group, relating to supply, research
and development and a leasing agreement for commercial use. The choice of Prima Industrie Group
as preferred supplier has been driven also by their commitment in CSR (Corporate Social
Responsabilities), as they set officially as one of their four corporate values the Social and
Environmental Responsibility.
11.2.5. Fair trade practices
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As the globalization of markets continues apace, national borders liquefy and loose their relevance
for trade in energy sources. Companies like EPS are therefore being challenged by their stakeholders
to exert influence on their suppliers through their procurement policy on both an international and
local level.
Purchases principally consist of raw materials and semi-finished products, such as the components of
fuel cells, which are then assembled and integrated into the Group’s systems, of Self’s electrolytic cell
and of the electronic components.
The Group is committed to build sound partnerships with suppliers through fair-trading in
compliance with procurement-related laws and regulations.
The Group is committed to the highest standards of ethics, honesty, openness and accountability. In
the course of our business activities, we fully endorse all applicable anti-bribery, fraud, corruption,
and money-laundering legislation, taking a zero-tolerance approach to any form of corruption or
fraud from either our own staff or those acting on our behalf.
The Company and its Supervisory Committee (Organismo di Vigilanza) provide ongoing bribery
awareness training to employees and have developed proportionate procedures across all its areas of
operations to ensure that bribery and corruption risks are minimized and eliminated where possible.
This commitment is reflected in the key principles contained within the Ethical Code and Anti Fraud
and Corruption Code of Conduct approved by the Group, which we expect all our staff and those
acting on our behalf to understand and comply with.
Partners agree to and undertake to fulfil any provision of the Ethical Code and Anti Fraud and
Corruption Code of Conduct approved by the Group and therefore agree, inter alia, to behave in the
full respect of business, corporate and professional ethics, preventing the EPS from any relationship,
agreement or role that may negatively affect our reputation, values and commitments.
We make all payments to the partners in compliance with any applicable anti-money laundering
regulation from time to time.
Furthermore, the shares of Electro Power Systems S.A. are listed on the regulated market of
Euronext in Paris. In this context, compliance by the Partner with rules applicable to stock
transactions and the holding and use of material non-public information it may receive in the course
of its activities under this Agreement is crucial for the Company. Such rules mainly stem from Articles
621-2 to 622-2 of the General Regulation of the French Autorité des Marchés Financiers (AMF) and
Articles L. 465-1 et seq. of the French Monetary and Financial Code.
For the upcoming years, the Group plans to create a Best Technology Provider Award to reward and
provide further visibility to the most strategic partners. It also aims to promote the criteria outlined in
the CSR guidelines in the purchasing processes and decisions, such as occupational health and safety,
consideration of human rights, respect of labour and environment.
The Group is introducing a procurement policy which entrusts tender contracts for works, services
and supplies in compliance with the legislation in force and the principles of cost-effectiveness,
correctness, competition, and advertising, using procedures which guarantee participating
businesses the utmost transparency, objectivity and equality of treatment.
In 2016 the Group will introduce an anti-corruption compliance plan to which all suppliers and
partners will be asked to adhere.
11.2.6. Other measures taken in favor of human rights
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We at EPS have set respect for human rights as the most important principle for conducting sound
business activities. Wherever Electro Power Systems Group operates in the world, the company
applies the same high standards and principles of conduct. Respect, diversity, integrity, ethics, safety
and sustainability — the elements that make up the EPS’ corporate culture foundation — are taken
into account by employees during their meetings with customers and colleagues around the globe.
The Group complies with all applicable laws and regulations concerning human rights in each country
and region, understands international standards, and respect human rights, and shall not condone
any use of either child labour or forced labour.
We will keep upholding human rights as one of our management principles and we will promote
awareness about our commitment to protect human rights throughout the Group with specific
workshops in the EPS’ Academy.
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11.3. Our responsibility to Environment
Energy and climate represent two of the toughest challenges of this century. The International
Energy Agency (IEA) has calculated that global energy demand will increase 1.4 times between 2012
and 2040 . We are undergoing a true energy revolution: according to the Bloomberg New Energy
Finance report on green economy in 2015 the investments in renewables reached 329 billion dollars
(4 percent higher than in 2014), while the installed capacity of wind power reached 64 GW and solar
PV rose to 57 GW.
The renewables market is now consolidating, also thanks to the investments in two major areas of
expansion in the world, such as Latin America and Far East (particularly China and Japan), where solar
and wind power can be the quickest and most convenient answer to the emerging demands of
energy.
The green revolution has started, and a 100 percent renewable energy system no longer seems to be
a utopia.
In 2015 the twenty-first United Nations Conference on Climate Change (COP21) in Paris sent a clear
message: greenhouse gas emissions must be remarkably reduced, in order to limit global warming to
two degrees.
Unlike other companies, which have to develop a climate strategy aimed at mitigating their own
impact on climate change, we at EPS contribute with our business not only to reduce our effects on
the environment to the minimum, but also to unlock the energy transition on a global scale. We aim
to establish ourselves as one of the world’s foremost eco-companies.
In other terms, regardless the policies implemented and outlined below, the main aspect to be
considered is that EPS has the environment at the centre stage of its business strategy.
This has led the Group to be:
listed in the 100 Cleantech businesses worldwide published by the Cleantech Group
awarded as Worldwide Technology Pioneer by the World Economic Forum.
awarded with the first prize in the Venture 4i in Grenoble and in the Italian Venture Forum
2014
selected as a “growing success story” for the Tech Tour Growth Forum in Geneva and
Lausanne
selected in June 2015 as one of the top companies worldwide to participate at the “Future of
Electricity Workshop 2015” of the World Economic Forum in New Delhi (India).
given in the context of the European Project Horizon 2020, the official “Seal of Excellence”,
the certificate delivered by European Commission, signed by Carlos Moedas, Commissioner
of Research, Science and Innovation, certifying the excellence in terms of real market
potential, technology, quality of the team, efficiency of implementation and business plan.
11.3.1. Our environmental policy, our investments
EPS’ goal is to definitely enable renewables as a 24/7 clean, reliable, affordable power source. We
develop, provide and integrate environmentally conscious solutions which contribute to the
reduction of the environmental impact of the electricity generation, trading, distribution, storage and
use.
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Our strategic emphasis on accelerating green resources growth as our primary value proposition
seeks to leverage energy as the bridge to a lower-carbon economy and demonstrates our
commitment to the climate change challenge.
The Group’s environmental policy comprises three main areas:
technologies: at a technological level we contribute to the provision of stable power supply
and to mitigate climate change through low-carbon energy solutions
manufacturing: as regards our processes we pursue high efficient manufacturing to reduce
the environmental impact in production activities
basic activities: we rely on people’s personal and professional sense of responsibility for basic
activities which could help reduce our consumption of resources, waste production and
polluting emissions on a daily basis.
The Group makes every effort to minimize its environmental impacts: our Standards & Regulatory
Assurance Specialists ensure we always operate in compliance with applicable legislation. Our
actions aim to protect health and well-being of our people and communities, while contributing to
socio-economic improvements and maintaining the financial stability of our business.
We consider environmental protection an essential part of sustainable development in all projects,
throughout the lifecycle of our systems and in all contexts in which we operate.
Just as we target with our business strategy a mitigation of climate change and resource and energy
efficiency for clients through our products portfolio, we’re also working to manage and reduce the
impact of our own operations. From the R&D activities down to all stages of the energy value chain.
Outstanding operational management:
contributes to reducing costs as it increases efficiency;
allows for product and process innovation;
is a requirement for the company’s license to operate; and
reduces business risks
Each year the Group has been compliant with the requirements of the ISO 14001 certification. More
specifically, it has adopted an environmental policy that:
identifies the environmental aspects of its activities, products and services within the
defined scope of the environmental management system that it can control and those that it
can influence, taking into account planned or new developments - either new or modified;
determines those aspects that have or can have significant impacts on the environment.
EPS has identified the following benefits from the implementation of these standards:
identified the following benefits from the implementation of these standards:
controlling potential risk factors affecting the impact of products on the environment;
reducing the risk of confusion, deterioration, contamination and error; and
paying greater vigilance by personnel in the performance of their activities
The Group has also obtained without reserves the ISO 9001 certification, for the fulfilment of the
specific requirements for a quality management system where an organization:
needs to demonstrate its ability to consistently provide products that meets customer and
applicable statutory and regulatory requirements, and
134
aims to enhance customer satisfaction through the effective application of the system,
including processes for continual improvement and the assurance of conformity to customer
and applicable statutory and regulatory requirements.
Finally, safety and environmental risk mitigation are also the subject matter of the CE, CSA and UL
certification of all EPS products.
In this respect, the Group dedicated in 2015 to ISO 14001, ISO 9001 and CE, CSA and UL certifications
investments for Euro 61,500 and has a budget in 2016 of approx. Euro 500,000.
The Group’s goal is zero environmental accidents. To achieve it, efficient systems, stable processes
and a focused program of work with risk assessments, routines and advanced technology are
mandatory. In the upcoming years, EPS’ environmental work will become even more systematic.
11.3.2. Pollution and waste management
To compete successfully in the digital age, organizations need to identify appropriate responses that
balance the needs for economical development, job creation, energy storage and supply with
greenhouse gas emission reductions and better waste and pollution management.
As a technologically advanced and pioneering company, we recognize that we have a particular
responsibility and opportunities to contribute finding the right solutions also at this level.
We have our own routines to ensure that waste is handled correctly and safety and has started
negotiations to collaborate with a specialized supplier which will manage all the processes of
hazardous waste.
EPS is a paperless company, and we encourage the use of:
Portable Document Format (PDF): to create, display and interact with electronic documents and
forms;
databases: to capture data for prefilling and processing documents;
workflow platforms: to route information, documents and direct process flow;
digital signature solutions: to digitally sign documents (used by end-users);
cloud applications: to receive submitted data, store documents and manage document
rights.
To minimize the use of paper we imposed a maximum of copies (printed or photocopied) per month,
which is decreasing every quarter. All the paper used for printing and package is recycled paper.
EPS has also limited the usage of “plastic” within its sites, which imposes use of washable domestic
utensils and cutlery for all the employees and staff, while plastic utensils are used only for guests.
Regardless the fact that our Hybrid Storage Solutions are completely clean and manufacturing and
testing protocols entail just oxygen and hydrogen emissions (reason for which we have no financial
provisions for environmental risks), EPS pays particular attention to measures to prevent
environmental risks and pollution, in particular to the choice of techniques and materials. To further
reduce the impacts of its activities and test on its products the Group takes great measures on
preventing technological and chemical hazards. The hydrogen produced during the tests is stored
and recycled for further use during other tests, while the pure oxygen is released back in the
atmosphere.
To achieve the objective of final waste volume reduction, programs are being implemented in all of
the Group’s premises to:
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minimize and control waste generation at the source;
promote sorting by providing bins for separate waste collection or by creating in-house
waste sorting centers;
recycle materials and reuse waste by selecting the most suitable methods; and
improve the processing and packaging of non-reusable waste.
Despite that fact that our manufacturing process does entail neither particular noise nor air, water or
soil emission, in order to improve the health and wellness management process for our workforce, in
2016 the Group will make further investments to embed leading industry practices on noise pollution
reduction within our premises and will start monitoring waste quantities from 2016 onwards.
11.3.3. Sustainable use of resources
The Group’s energy storage solutions, in particular HyESS (“Hybrid Energy Storage Systems”), allow
a reduction in the quantities of energy produced by renewable sources, which would otherwise be
curtailed, and represents lost income for the grid, estimated to reach more than US$ 30 billion at
international level by 2023.
Our systems promote also a more direct participation of consumers at the level of use and in the
management of their consumption (management of demand).
Energy storage should permit cost savings by allowing electricity producers and suppliers to avoid
purchasing electricity at peak prices and buying (or producing) it when it is cheaper, regardless of the
moment when it will be used. The recourse to energy storage in order to smooth load peaks, i.e.
smoothing hourly production, represents a potential market estimated in a range of US$ 10-25 billion
per year by 2025.
Devices that permit the storage of excess electricity, derived from renewable energy sources during
periods of strong production and weak demand (e.g. at night) and returned to the grid when demand
increases (around midday). This avoids a slowdown in conventional plants at night, and in this way
permits a reduction in production costs and CO2 emissions.
During 2015 a wide variety of energy saving activities were implemented across the Group.
In October a completely new manufacturing facility was brought on line in Turin (Italy), helping
ensure a higher level of operational reliability and resource efficiency.
Most commonly and cost effectively, both facilities and premises adopted energy-efficient LED
lighting solutions, which will help reduce the consumption of electricity and the energy-related CO2
emissions. Through measures such as energy-efficient manufacturing and power equipment in the
Turin site we optimised the lighting system passing from a need of 12kW to only 4.6kW.
Other activities included optimizing heating and cooling processes within offices and facilities,
investments in more efficient equipment, encouraging sustainable mobility of the employees, by
train, car-sharing and less polluting means of transport.
Further optimization in all operating units and premises continue to be pursued and additional
improvements are possible. In 2016 energy efficiency reporting practices will be extended in line with
internationally accepted best practice and in support of EPS’ operating model. To achieve enduring
operational excellence, the Group is taking into account a photovoltaic project for 250kW to cover all
the energy needs of testing activities of the systems manufactured in Turin through the electricity
produced by solar panels on the roof.
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11.3.4. Climate change
An important target of the European energy policy is the reduction of the greenhouse gas emissions.
Unfavorable climate conditions, such as storms and floods nowadays affect business continuity, in a
disruptive way. To meet the high demand of solutions to ensure energy efficiency and autonomy, we
at EPS have developed a full range of products and services which solve different issues in the field of
business continuity for telecommunication, energy and railway companies.
The energy supply of the future must become more climate-friendly, more efficient and more
intelligent. Innovative technologies, products and systems at all stages of the energy value chain are
essential for achieving this objective. The stages range from extraction of raw materials, through
electricity generation, trading, distribution and storage of energy, to the use of energy.
Although climate change is not directly affecting our business, the EPS’ top priority is climate
protection.
The Group’s aim is to tackle this issue by further expanding renewable energies, both in mature
economies and in emerging countries, and to contribute to replacing older and polluting power
plants, which generate high levels of emissions, with new and high-efficient plants. We’re playing a
key role in structuring the energy transition so as to solicit and enable a carbon-neutral electricity
supply, while at the same time being in a position to make provision for future energy needs with a
high quality of backup power supply over the long term.
Climate protection also plays an important role in the debate going on in the public domain. Our
stakeholders, mainly customers, institutions and politicians expect us to support the accomplishment
of ambitious targets and to deliver a consistent approach directed towards the reduction of
greenhouse gas emissions.
Our operations require energy which gives rise to the carbon dioxide emissions, directly or indirectly.
To reduce greenhouse gas emissions, the Group decided to introduce a hybrid corporate fleet and
will also evaluate the introduction of electrical vehicles for the urban business trips.
To help reducing the greenhouse gas emissions linked to the business trips of our workforce within
the sites of the Group, we will introduce a multisite video-conference system. The Group will also
introduce a specific “green procurement” in other words the sourcing of products and services which
are more environment-friendly than others, such as recycled/reused materials for the premises’
stationery and similar.
Corporate governance and internal control
The Chairman of the Board of Directors has established the following report on the Company’s corporate
governance and internal control process, pursuant to Article L. 225-37 of the French Commercial Code. The
statutory auditors have established a report on such report of the Chairman of the Board of Directors, which
is also reproduced hereafter.
12.1. Report of the Chairman of the Board of Directors on the Company’s corporate governance
and internal control process
Please see the Annex 5 of this Annual Financial Report.
12.2. Report of the statutory auditors on the report of the Chairman of the Board of Directors on
the Company’s corporate governance and internal control process
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Please see the Annex 6 of this Annual Financial Report.
12.3. Fees of the statutory auditors
The table below presents the fees paid by the Company to the statutory auditors, in compliance with article
222-8 of the General Rules of the AMF.
Ernst & Young et Autres RBB Business Advisors
Montant (en €) hors
taxes
% Montant (en €)
hors taxes
%
2015 2014 2015 2014 2015 2014 2015 2014
Audit
Audit comptable,
certification, examen des
états financiers annuels et
des états financiers annuels
consolidés
EPS SA 215 705 0 52 % 0 % 24 599 0 100 % 0 %
Filiales intégrées 47 000 20 000 11 % 100 %
Autres prestations de
services présentant un lien
direct avec la mission
d'audit
EPS SA
Filiales intégrées
Sous-total 262 705 20 000 64 % 100 % 24 599 0 100 % 0 %
Autres prestations de
services réalisées par les
réseaux pour les filiales
intégrées
Questions juridiques,
fiscales et d'emploi (droit
du travail)
Autres1 150 000 36 % 0 %
Sous-total 150 000 36 % 0 %
TOTAL 215 705 20 000 100 % 0 % 24 599 0 100 % 0 %
Methodology Note
This Annual Financial Report provides a detailed presentation of Group financial and non financial responsibility
priorities and practices. It describes the current and future challenges faced by the Group, the strategic
approaches adopted in response and progress achieved in meeting its objectives. This report is drawn up in
accordance with Annual Financial reporting requirements applicable in France (L.232-1, L.225-100, L.225-102,
L.233-6, L. 464-2, I, al.5 -1, L. 441-6-1, al. 1, Article L. 225-211, Article L. 233-13, Article R. 228-91, L. 225-235, L.
225-37 of the French Commercial Code); (Article 243bis of the French General Tax Code) (Articles L. 621-18-2 and
138
R. 621-43-1 of the French Monetary and Financial Code and Articles 223-22 and 223-26 of the General Rules of
the French Market Authority) and (Article L. 511-6, 3bis al. 2 of the French Monetary and Financial Code).
13.1. Reporting boundaries and indicators selection criteria
The reporting boundary for financial, social and environmental indicators is comprised of the
subsidiaries controlled by the Group as at 31 December 2015. These subsidiaries are consolidated
according to the full consolidation method. As a result, unless otherwise specified in this report with
the statement “at the date of this report”, any figure does not take into account the employment,
social and environmental indicators on and from 1 January 2016 which includes the acquisition of Elvi
Energy S.r.l. and MCM Energy Lab S.r.l., as well as the new hiring of the Group.
The reporting boundary for employment indicators for fiscal 2015 coincides with the Group’s
structure for consolidation (cf. note 1.4 to the consolidated financial statements).
The following indicators concern only the workforce located in Italy (79% of the Group’s workforce)
due to the immateriality of information reported by other entities of the Group (Electro Power
Systems Inc. and Electro Power Systems (India) Ltd.), essentially because of either the non
operational activities or the exclusive focus on business development:
occcupational accidents
absenteeism
training and the organization of dialogue between employees and management
equal opportunity employment
Analysis of employment-related, environmental and social impacts relating to Group activities made
it possible to define relevant indicators in accordance with requirements resulting from the Grenelle II
Environmental Law (article 225). Certain information not falling within the scope of the Group’s
activity or its environmental and societal priorities due to its operating method and structure was not
considered pertinent and on that basis included in the reporting boundary just in the “Future
challenges and approaches” section, or, with reference to the following information, excluded from
this report and its reporting boundary:
water consumption and supply in relation to local constraints;
land use;
climate change;
biodiversity;
impacts on neighboring or local populations.
With the appointment of the new board in February, since 2015 the Group has started for the first
time to formalize and monitor CSR goals, with precise policies and procedures that are implemented
by its new operational and support departments. For that reason, CSR indicators and criteria have not
been monitored in 2014 and therefore all quantitative indicators cannot be presented from one
period to another. However, the 2015 CSR quantitative indicators presented in this report will serve
as reference for any future CSR reporting of the Group.
Pursuant to the Article L.233-6 of the French Commercial Code, the matter “significant acquisitions
of stakeholders or of control in companies whose registered office is located in France” is not
applicable.
Pursuant to the Article 243 bis of the French General Tax Code, no dividend has been paid, since the
Group’s incorporation.
139
Pursuant to the Article L. 464-2, I, al.5 of the French Commercial Code, the matter “anti-trust
sanctions” is not applicable.
Pursuant to the Article R. 228-91 of the French Commercial Code, the matter “adjustment of
conversion basis and of subscription or exercise conditions of warrants, stock options or aother
instruments giving right to shares of the Company” is not applicable.
Pursuant to Article R. 233-19, al. 2 of the French Commercial Code, the matter “Transfer of shares for
the purpose of regularizing cross-holdings” is not applicable.
13.2. Calculation criteria
Below are the methods for calculating:
Total absenteeism = B / (A+B). Sickness absenteeism = C / (A+B). Where:
A = Number of hours effectively worked by all Employees with contracts, including training
B = Number of hours of absence (sick leave, occupational diseases, maternity leave,
accidents in the work place and/or travel-to-work accidents or any other absence not
provided for by contract or social shock absorbers schemes)
C = Number of days of sick leave (excluding occupational diseases, maternity leave, accidents
in the work place and/or travel-to-work accidents)
Headcount: full and part-time employees on fixed-term, permanent, temporary and
professional training contracts, and permanent advisors (“Employees”), as well as
management (including Chairman, Executive board members and members of the Executive
Commitee), and partners dedicated to the business development (which have been
contractualized through business partnership agreements), in force as at 31 December 2015.
Temporary personnel is not included in this data. When reference is made to “at the date of
this report”, the data includes Employees of EPS and Employees of Elvi Energy S.r.l. and
MCM Energy Lab S.r.l and their partners as at the date hereof.
Training: the percentage of persons trained in relation to the total Italian workforce at 31
December 2015.
Workforce by social professional category: as the same classification for management
versus non management employees does not exist in certain countries, management refers
exclusively to chairman, executive and active members of the board.
Total Recordable Injury Rate (TRIR): is a commonly used indicator that measures how
many OSHA recordable incidents a company has per number of hours worked.
TRIR = (# of Recordable Injuries * 200,000) / # hours worked.
Lost Time Injury Frequency Rate (LTIFR): is the number of lost time injuries occurring in a
workplace per 1 million man-hours worked.
LTIFR = (# of Lost Time Injuries * 1,000,000) / # hours worked.
140
Concordance table
To facilitate the reading of the Management Report, the following concordance table provides cross-
references to the main categories of information required by French law (Article L.451-1-2 Of The French
Monetary And Financial Code And Article 222-3 Of The General Rules Of The French Market Authority).
2015 Financial Statements of Electro Power Systems S.A. Annex 1
Statutory auditors’ report on the financial statements of Electro Power Systems S.A.
Annex 2
2015 Consolidated Financial Statements Annex 3
Statutory auditors’ report on the consolidated financial statements Annex 4
Situation and activity of the Group during Financial Year 2015 3
Evolution of the business, results, and financial situation of the Group 4.1/4.2
Key financial and non-financial performance indicators 6
Business Outlook 5.2
Significant events since 31 December 2015 5.1
Activities in terms of research and development 7
Significant acquisitions of stakeholdings or of control in companies whose registered office is located in France
N.A. (see 13)
Amount of dividends paid since the Company’s incorporation N.A. (see 13)
Anti-trust sanctions N.A. (see 13)
Information regarding suppliers’ and clients’ payment timelines Cf. Consolidated Financial
Statements 4.18 and 4.24
Description of the main risks and uncertainties the Company and the Group face 8
Indication of the use, by the Company or the Group, of financial instruments 8.4
Exposure of the Company to the risks in terms or pricing, credit, liquidity and cash 8.4
Social and environmental consequences of the activity and social commitments in favor of sustainable development
11
Offices held and duties assumed within any company by each corporate officer (mandataire social) of the Company in 2015
9.2
Remuneration and benefits granted by the Company or the Group to any corporate officer (mandataire social)
9.3
Undertakings by the management to hold shares of the Company for a certain period of time
9.4
Transactions completed by the management on the Company’s shares 9.5
Information regarding the allocation of the share capital of the Company 10.2
Treasury shares 10.1
Information referred to under article L.225-211 of the French Commercial Code related to the Company’s transactions on its own shares
10.1
Transfer of shares for the purpose of regularizing cross-holdings N.A, (see 13)
Presentation of the employees’ holdings in the share capital of the Company as at 31 December 2015
10.3
Agreements entered into with a subsidiary 10.4
Loans granted to small related entities 10.5
141
Adjustment of conversion basis and of subscription or exercise conditions of warrants, stock options or other instruments giving right to shares of the Company
N.A, (see 13)
Table and report regarding the delegations conferred by the shareholders’ meeting to the Board of Directors in view of an increase in share capital
10.6
Table of the results of the Company for each financial year since its incorporation 4.3
Corporate governance and internal control 12
Report of the Chairman of the Board of Directors on the Company’s corporate governance and internal control process
12.1 (Annex 5)
Report of the statutory auditors on the report of the Chairman of the Board of Directors on the Company’s corporate governance and internal control process
12.2 (annex 6)
Fees of the Statutory auditors 12.3
